Advice sought on investment options

| 10/05/2017

For what is considered a major financial centre, I am having difficulty in finding reasonably priced advice for a small investor. Most companies only appear to want large sums of money, the banks just insult you with their interest rates. Where can one invest $50,000? It is my life savings and I don’t want high risk, just long-term steady growth.

Auntie’s answer: To the reader who asked this question, I know you have been waiting a long time for the answer, but it took a while to find the right person to approach. I also took it upon myself to seek advice on larger investments of up to $500,000 in case other readers might find that information helpful.

I asked this question of Rich Ellison of OneTRADEx, who said that “in the investing world there currently isn’t much difference between $50K and $500K in terms of options”.

Mr Ellison also pointed out, “Finding reasonably priced advice for small investors is generally a problem the world over. The returns that one may expect from a small portfolio would not be sufficient to cover the cost of full discretionary account management by an investment advisor or portfolio manager. For small investors this means there is a slightly more limited range of options to manage their savings and investment.”

Below are the investment options he shared (and I thank him for his very comprehensive answer):

1. Bank deposits — the most liquid assets, however the rate paid on bank deposits is currently at historic lows and for a number of bank accounts in the Cayman Islands there is currently no interest being paid. Bank depositors also take on the credit risk of the bank where they deposit and are unsecured creditors in the event of a bank failure.

2. Annuities — a form of insurance that provide holders a series of payments at some point in the future in return for a lump sum payment or series of payments made to the annuity provider. This can be a good product for providing a monthly or annual stream of income during retirement but it is not suitable for short to medium term saving and investment. Purchasers of annuities should be sure to check the history and rating of the company they are making payments to as there needs to be a high level of confidence that the annuity provider is well capitalised and will be around in 10-20+ years to pay out on the annuity.

3. Bonds — investors loan companies or governments money by buying their debt securities, essentially an IOU to pay back the amount loaned plus an agreed rate of interest. The bonds run out or ‘mature’ on a fixed date in the future when, all being well, you get your money back. For small investors the most accessible type of debt securities are referred to as retail bonds. For these bonds the minimum amount starts at a very low level, sometimes as little as $1,000, with companies using the money raised to grow or to fund their business objectives.

While bonds offer the promise of an annual return there is always a risk that the borrower runs into financial difficulty and is unable to pay the interest on the bond or the full amount borrowed back.  In terms of interest paid on a bond, the rate will increase with the risk associated with the borrower and term or duration of the bond. To put this another way, the interest rate will be higher if the funds are tied up for a longer period of time or when there is a greater chance that the investor might not be paid back in full or on time. For reference, the BofA Merrill Lynch US corporate seven-to-10-year effective yield as of 8 May 2017 was 3.63%, reflecting the yield on US investment grade bonds with a maturity between seven and 10 years out.

4. Mutual funds — are pooled funds from a large number of investors that are used to invest in securities such as stocks and bonds; this allows for professional management at a reasonable cost that could not be achieved by most investors on their own.

5. Direct share investments — many companies will allow investors to purchase shares directly in the company without setting up a brokerage account. Often transaction costs may end up being higher than using a low-cost brokerage account. CUC (5.12% dividend yield) and Consolidated Water (2.58% dividend yield) are examples of Cayman Islands-based companies that allow for direct investment.

6. Self-directed brokerage accounts — expand your investment options beyond a preselected investment lineup that may be presented by a bank or financial planner. It gives participants more flexibility to select individual investments across markets and countries. In general, self-directed accounts offer a broad range of securities such as stocks, bonds, options and futures at a reasonable cost; however, being self-directed investment, advice is not provided.

Investors looking at brokerage accounts should inquire as to the full cost of trading, including any custody fees, minimum account size and fee levels. Other questions to ask are whether the provider is regulated as well as where funds and securities are held and how they are held. Securities may be held in segregated accounts under the client’s name or on an omnibus basis where securities of a number of investors and the brokerage itself are co-mingled inside of one account. Segregated accounts are preferred and safer for the investor should there ever be a problem with the brokerage.

And, as a final point, Mr Ellison said, “The above products are accessible through brokerages, banks, insurance companies and financial advisors. Unfortunately, we are currently in a low-return environment and the expectation is that this will last for an extended period of time. The Vanguard Group, with US$4 trillion in client assets invested through various products, recently forecast that the return on a typical 60% stock and 40% bond portfolio would range from 5.5% to 6.5% into the next decade. This is fully 2-3% lower than the historical return on this type of portfolio.”


Category: Ask Auntie

Comments (32)

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  1. Anonymous says:

    I want to save some money for my child’s higher education abroad in about 3 years. Where can I save it securely and preferably with some returns?

  2. Anonymous says:

    Physical Gold or Silver coins or bars, paper assets is worth just that when the times change as they always seem to do, all empires fail in the end, hide your gold in seemingly worthless things or a hidden safe, dont trust the banks there the ones who got us all into this mess to begin with

    • Anonymous says:

      Gold, Silver, and Jewels have no more intrinsic value than paper money. They are only valuable because society has decided this is the case. If we were to be hit by another Hurricane or a fanciful “Collapse of society” the most valuable resources would be clean water, food, shelter, and fuel/power.

  3. Anonymous says:

    My advice would be don’t take investment advice from folks over CNS.

    • Anonymous says:

      There are some very good suggestions here, don’t rush to be so judgemental. The writer asked Auntie and got a reply from a financial advisor, the rest are comments and the writer may benefit from Aunties advice, after all, thats the whole point is it not?

  4. Anonymous says:

    This should maybe be a separate question, Auntie, but why do banks here not provide to its clients insurance for deposits up to a certain amount that they hold so that if the bank fails, the client doesn’t lose their money? We are very vulnerable here.

  5. Anonymous says:

    It’s a precarious era to seek financial services offshore. Despite the enormous strides and early adoption of international tax and PCMLATF compliance, FATCA, CRS, beneficial ownership registries, there remains the international perception that the Cayman islands is somehow hardwired to harbor tax evaders, money launderers, and international corruption. Despite our strides, our leadership has failed to convince the world that our operational MO has changed.

    Onshore parent companies have been pressuring their offshore subs to aggressively de-risk their businesses. Many smaller firms have had difficulty retaining custodial relationships. These operational struggles have been going on for over a decade now. The operational costs are very high, margins low, and minimum accounts are by default generally higher than they would need to be elsewhere in the world.

    In selecting your firm, consider the fee schedule and custodial or monthly/annual fees (if charged separately). Confirm that non-margined client assets are held in trust and in separate custodial accounts to the normal operating accounts of the company. Ask Eurobank customers what happens when these two worlds are co-mingled in a liquidation. Ask the customers of Caledonian about the merit of regulator-to-regulator pressures which can precipitate such a liquidation!

    Ask if there are any major regulatory investigations, or pending fines. Most of Cayman’s banks have made settlements to IRS, but few have settled with CRA, or Inland Revenue to my knowledge.

    Look at bank’s loan exposure and collateralization.

    Ask if they subscribe for “fraud, errors and omissions insurance”, and ask to see the current policy letter and note any policy limits. Caveat emptor: be thorough about your due diligence as there are low barriers to entry and little oversight of the 34 CIMA SIBL-exempt managers operating in the jurisdiction.

    • Meh, enh says:

      I don’t work at CIMA, but it is actually hard to get a SIBL License and they do a good job with those licensees. But there are like only 30 of them with actual licenses and audits, insurance etc.

      The 2,000+ SIBL Exempt companies, who really knows what goes on there…

  6. Anonymous says:

    As a former financial advisor (Moved into a different job), it is highly crucial that before you invest a dime that you sit down with the person you are planning to invest with and fill out a risk assessment to know your tolerance to risk. In addition, if the money is to be used for retirement you can invest in long term options like Mutual Funds and Bonds. However, if you are planning on being able to take it out if and when you need it, those options would not be the best.

    Make sure you express to your financial advisor your intent and how long you want to keep it saved. If you do go for Mutual Funds, try to find one that follows the Dow or S&P index that is passively managed so your money doesn’t get eaten up by Management Expense Ratios. You want to shoot for less than 1%.

    • Anonymous says:

      $50K…? Not rocket science.
      Just buy CUC shares giving a steady 5 to 6 % return plus capital growth.

  7. Anonymous says:

    Great news! There are so many people here willing to relieve you of your life savings! Now is the time to buy! buy! buy! Lewis Molson Ebanks has just the property – but you have to act fast – commitments are pouring in from his printer! shift-F7 shift-F7 shift-F7 shift-F7 shift-F7 shift-F7 shift-F7 shift-F7 shift-F7 shift-F7 shift-F7 shift-F7 shift-F7 shift-F7 shift-F7 shift-F7 shift-F7 shift-F7 shift-F7 shift-F7 shift-F7 shift-F7 shift-F7 shift-F7 shift-F7 shift-F7 shift-F7 shift-F7 shift-F7 shift-F7 shift-F7 shift-F7 shift-F7 shift-F7 shift-F7 shift-F7 shift-F7 shift-F7 shift-F7 shift-F7…

  8. Anonymous says:

    RBC helped us get going with similar modest amount… ETF S&P tracker was good value

  9. Anonymous says:

    There are 600 households that can not pay there water bill.
    There are 100’s that are sick, will loose their house and die, because the privat insurance company does not want to pay.
    You have 50k ? Invest it in people that need it.

    • Anonymous says:

      LOL – okay St Francis. Why don’t you hit up your homegrown wealthy compatriots, living in gilded seaside castles, and leave poor Miss $50k alone! There are many Caymanian families that have amassed hundred-million fortunes off the backs of every resident for decades. Every good that is imported or development that is built lines their pockets. Hell, they even chair the flippin’ Planning Committees that decide what is built and what is not! Such weird taboos here! Just hop the electrical fence, barbed wire, and glass shards, and knock on their friendly altruistic door, I’m sure they will dispatch their property managers to tackle your interests!

    • Anonymous says:

      That’s not the writer’s problem. Why don’t you give your life savings to those people instead since you are so concerned about them.

      • Anonymous says:

        I already do.
        Something most of you dont understand.

        • Anonymous says:

          I very much doubt it, a truly altruistic person is unlikely to post your kind of bitter judgemental comment.

    • Anonymous says:

      Have you given any thought to your comment? The person wants to invest LIFE savings and perhaps it is so he or she CAN pay their water bill in future and not rely on charity.

    • Anonymous says:

      Then they need to figure out how to take care of themselves. No one should rely or expect that anyone will help them. A thriving society is built on people who take ownership of their own problems.

      No one with money should be guilted into giving to the poor. Most wealthy amassed their wealth from hard work and started with meager beginnings themselves.

      I find this generation of Caymanians to give up easily and expect handouts all the time. Yes people get sick, but doesn’t anyone plan for these things anymore? Purchase life insurance which allows for a withdrawal of sick, investing even a little every month.

      Sometimes it is surivial of the fittest and the stupid and sick should not survive or humanity will multiply the weak.

  10. Anonymous says:

    At least two local banks offer advice for free and they offer the products to invest in, e.g mutual funds, etc. Check with Butterfeild & CNB. The others may also do so.

  11. Anonymous says:

    Check the local banks! CNB offers brokerage services and locally managed mutual funds with low fees.

  12. Anonymous says:

    If you are a CUC customer you an invest $1k per month into their shares, they currently pay about 5% dividend annually which you can roll up into a reinvestment plan, they don’t charge custody fees or investment fees, which on $50k can be a large part of the returns. It will take you a while to fully invest those funds but you will also be averaging your point of entry…

    • Anonymous says:

      Good point but judging from the information the investor provided. I think Mutual Funds would be their best bet as their funds would be diversified and risk minimized with stead growth. I would not recommend having anything more than 5% weighting of you portfolio in CUC. There are tons of other 5% dividend paying stocks out there that are less costly. Never put all your eggs in one basket, especially If they’re the eggs you’ve been saving all your life.

      • Annamouse says:

        Open the self-directed brokerage account and buy Exchange Traded Funds, better liquidity and lower fees than a traditional mutual fund.

  13. Anonymous says:

    Sagicor Life Insurance has some good options …. talk to an agent.

  14. Anonymous says:

    Credit Union

  15. Anonymous says:

    How can one get hold of Mr Ellison, he seems to know what he is talking about!

    • Cold Cut Combo says:

      Onetradex is upstairs from Subway. I eat too many meal deals because there is nothing in George Town anymore, walk past the sign everyday!

  16. Anonymous says:

    Wow…that actually made sense from a financial guy.

  17. Anonymous says:

    Very simple problem you have