Growth & Jobs | Investing in real estate and mutual funds

JAMAICA’S AGEING population is increasing, and its growth may have implications for pensions and social welfare policy.

According to the Statistical Institute of Jamaica, the population of people age 65 and over increased from 11.3 per cent in 2011 to 11.9 per cent in 2013, and is expected to be greater than 20 per cent by 2050. The country is currently undertaking another census.

Considering the trend among the ageing population, one financial adviser is urging persons planning for retirement to consider real estate investment and mutual funds as part of their investment portfolio.

Kimberly Savage, assistant vice-president of sales and client services at JN Fund Managers, said investing in or near retirement can be especially difficult as, at retirement, persons need their assets to be relatively liquid, low-risk, and ideally should be keeping pace with inflation.

“In many cases, you need your assets to provide income, and you want to minimise taxes and costs. Real estate can be an asset class with high returns. It also usually offers a hedge against inflation,” she informed.

Savage further advised that real estate has historically been linked with conventional assets and is a good way to diversify one’s investment.

For most people, their home is their most valuable asset – oftentimes worth more than their savings. If you own a home, then you are invested in real estate, she informed.

Savage pointed out that this asset is a way to help fund retirement. “There are many ways to utilise your home equity to generate retirement income. Your home can be leveraged to gain equity to fund a long-term care need, among other options,” she noted.

The JN Fund Managers’ adviser informed that persons can also buy a property and rent it to earn an income in their retirement years. She, however, noted that persons would have to attract tenants who are willing to pay enough to cover the mortgage, if there is still a mortgage on the property, plus insurance, taxes and maintenance.

Citing some advantages, Savage said long-term rental is an opportunity to gain above-average returns on investment and is a key part of a well-diversified portfolio. This, she explained, is because there is cash flow in the form of monthly rent.

In addition, real estate is a hard asset and often maintains its value, and even appreciates over time.

Savage, however, noted that there can be a downside to long-term rental, as managing a rental property can be time-consuming and stressful.

“You need to be capable of taking care of problems with the home and deal with your tenants’ ability to pay, and any vacancies that might occur. It also requires significant upfront capital to purchase a rental property,” she pointed out.

INVEST IN MUTUAL FUNDS

Savage explained that persons should also explore the option of mutual fund investments. “Mutual funds are deemed as some of the most ideal investment tools for retirement planning, with features such as dividend reinvestment, asset diversification, and its dollar-cost averaging effect,” she said.

Mutual funds are pooled investments that allow investors to experience a more diversified approach to yielding greater returns on their money. Mutual funds are professionally managed investments that are recommended globally, due to the nature of the product.

Savage said this investment option is tailored to suit just about any type of investor.

“Mutual funds give you the option of investing in various asset classes, such as stocks and bonds, among other investments. This flexibility in mutual fund investment means security and diversification as a vehicle for wealth creation and retirement planning,” she explained.

She said that among the advantages of having a mutual fund investment, are that mutual funds are professionally managed, and as such are hassle-free for the average investor.

She noted that other benefits include diversification and a higher security level guaranteed through pooled fund investments, thus lowering the market risk.