Sunday 10th December, 2006

 

Cover your bases

 
 
 
 
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Between October and now, the US dollar slid some four per cent against the euro and the Japanese yen, its weakest for almost two years. In the US economy, this pressure almost always fuels inflation. And back at home, we are shopping for Christmas presents!

The relevance lies in a basic question: How much of what we buy and sell do we trade in US dollars? Stemming from that is the fact that our oil and gas exports are priced in US dollars. In fact, the oil price peaked at US$78, this year, fell in autumn and is rising again up to US$63 per barrel.

For investors, and for us, the anomaly in the US is in the interest rates, the repo rates and the experience of the returns or yields.

Locally, despite rises in the repo rates, the returns, or yield paid out by mutual funds for example, and those saving money, remains savagely low—much lower than the inflation rate.

Save for your life!

So when the future seems uncertain, a rule in financial planning is to check over your bases. Make sure you have the essentials covered—the life insurance policy is so important now, for the simple reason that the stress can kill you! And that is not just meant to be funny!

For less than a dollar a day, young people can purchase a contract that can possibly deliver some half a million dollars, at some time in the future. The only assumptions are that you are healthy enough to pass a medical examination and that your lifestyle is not hazardous.

The beauty of such a strategy is that it is virtually risk-free, cheap, and the price will not go up in the future! Many people undervalue these three features of life insurance and die without ever creating a sensible estate. They renege on a dream to provide well for their families.

The choice they make, is in fact to pursue the most risky, and most expensive path—eventually paying dollar for dollar for loss of income or disability, since they pay through their own pockets, never transferring the risk to another.

The second base to cover is the longest term. And that is your pension. There are thousands of individuals who leave their excess monies at the end of every year in bank accounts that pay two to three per cent per annum. That is foolhardy when they can put away, in a tax-sheltered vehicle, as much as $12,000 saved each year. The actual benefit is a higher rate of return in addition to a refund of $3,000 back from the Government.

The six-month plan

The third base is the short-term savings accumulations. You need to have set aside somewhere, an average of five months’ salary. Such a vehicle of savings must allow you to access the money almost immediately.

Many personal disastrous financial events can be corrected in a five-month period. You can recover from serious illnesses, accidents, or calamities, even a loss of job, or an economic downturn, and get back on your feet.

Of course that is providing you have the five months of salary saved up somewhere to tide you over the period of stress and loss. It is fundamentally about being and feeling secure. And having these three bases do just that.

Try it! And see how good you feel psychologically and physically this Christmas. Keep in your thoughts, the economic reality that experts persistently hold that the fair price of oil on the world market is US$50 dollars per barrel.

So what’s the best Christmas present you can give your family ever?

©2005-2006 Trinidad Publishing Company Limited

Designed by: Randall Rajkumar-Maharaj · Updated daily by: Sheahan Farrell