By YOURI KEMP
Tribune Business Reporter
The Bahamas International Securities Exchange’s (BISX) chief executive is urging investors to conduct proper risk assessments before parting with their capital.
Keith Davies, warning that all investments come with some amount of risk, added that mitigating those dangers prior to taking up the opportunity - in effect, de-risking - were vital to avoiding loss later on.
“People talk about what’s a safe investment. I would say it is the amount of work you put in prior to making the investment,” he explained “You would say that property is safe, so I’m going to buy a piece of land. Well, if your land is going to be flood prone and we have global warming, if that piece of land on the coast is going to drop in the ocean real soon, what’s the value of that?”
David Slatter, RF Bank & Trust’s vice-president of investment management, told the same webinar that many people “fail” to appreciate what it takes to maintain real estate. They believe a duplex or triplex is an ideal scenario for investment, but do not look at the potential risks involved in becoming a landlord.
“There’s a lot of maintenance that is required. When it comes to renting, there’s also the risk that your tenants don’t pay and it’s very difficult to get them out of your property. So that’s what we call a counterparty risk,” he added.
Investment is all about assessing risks, Mr Slatter said, adding: “If you’re 20 and you retire at 65, you still have 45 years of employment. That means you’ve got a 45-year investment window which means you can take more risk.
“So you have the ability to take risk because you’re young, and you have a lot of earning years ahead of you. If you’re getting close to retirement and you need your retirement funds in five years, you’ve got five years to work with so you need to take less risk.”
Mr Slatter said persons coming close to retirement need to take less risk. He added that investments such as real estate have “liquidity risks”, and it is very difficult to sell property and turn it into cash quickly.
“When it comes to investing that’s one of the things we look at. We want to make sure that you’re investing in securities that can be converted to cash quickly and with minimal costs, especially as you get to retirement,” he said.
“As you get older you want to have those kinds of investments in bonds, preferred shares, or common shares that pay a good dividend.”
Mr Davies added: “I think it is vitally important that we spend time to increase financial literacy, your knowledge about investing, your knowledge about saving and your knowledge about putting your money to work.
“So if you have five years left to work and you have no savings, and you have a number of things that you have commitments on, you’re going to have a problem.”
Warning that multiple Bahamian generations “mortgage their future” without thinking about retirement, Mr Davies said you have to carefully assess the risks involved with daily living and take advice about your finances at an early stage.