- March 1, 2022
The Caribbean, in general, has a low tolerance for investment risk. This statement is reinforced by the fact that the RF investments with the highest participation are the low-risk options. While it’s true that no one enjoys losing money, it’s unlikely the Caribbean diaspora dislike it any more than the rest of the world. So why does historical data show that we as a people are less likely to invest in moderate to high-risk investment options?
A Relatively New Investor Market
The first iterance of a mutual fund can be traced back to Europe in the 1700s. The structure most similar to what we know today began in the 1920’s in the United States. However, mutual fund investments didn’t become available for Caribbean nationals until the 1970’s. That’s a minimum of half a century’s difference in exposure and education to the world of investing for the average consumer. Similarly the first stock exchange was introduced in New York in 1792, in comparison, the first Caribbean exchange didn’t come to fruition until 1969 in Jamaica. That’s almost a 200 year learning gap.
Limited Confidence In Financial Institutions
While financial literacy and investor education are certainly contributing factors, other challenges such as lack of trust for financial institutions shouldn’t be overlooked. If you don’t trust a traditional bank, what are the chances of you investing with a money manager? According to the Global Financial Inclusion (Global Findex) database, lack of trust in banks is the second most important justification for people in Latin America and the Caribbean not to have a formal savings account. Whether that’s to do with the volume of fees or lack of interest rates is speculative.
Break The Cycle
Regardless of past challenges, it’s clear that the benefits of investments for locals are swiftly moving from a “nice to have” into a necessity to keep up with inflation. Not only do they provide solutions for the nonexistent interest rates of savings accounts, but there is also a significantly larger amount of knowledgeable local professionals readily available to provide investor education. Many Wealth Management companies offer financial advice at no charge and take a holistic approach to assessing an individual’s finances, not just what would fall under an investment portfolio.
Managing Risk
Back to the question of risk. The best way to manage investment risk is not by going for the lowest risk investment. Experts suggest that diversifying your portfolio is the ultimate tool for risk management. In other words, your portfolio should hold a balanced mix of low-risk, moderate-risk, and high-risk investments.?Age and goals will play a role in determining the right balance for your situation and a session with a professional Financial Advisor will define what that looks like for you.
At RF Bank & Trust we offer a selection of mutual funds which include low, moderate and high risk portfolios. Our Advisors are experts and will help you find the right risk versus reward balance for you.
An RF Advisor can help you get started, or continue guiding you, on your investing journey with the best asset mix for your goals. Book an appointment with an Investment Advisor today.