Financial planning experts answer readers’ questions

(CNS Local Life): The Cayman Islands is considered a rich country with all the trappings of wealth, but there is growing anxiety about personal finances among the local population and this jurisdiction has recently been ranked as world’s most costly place to live. So, earlier this month we invited readers to send in questions about their personal financial situation, and independent financial advisers Stephanie Plews and Allan Shine, CFP® from International Financial Planning (IFP) offered to answer them, giving their professional advice to CNS Local Life readers for free. Six readers took advantage of this one-time opportunity; the questions and answers are below:

Questions 1:

I am a Caymanian who is seeking to FIRE: achieve Financial Independence and Retire Early. Essentially, I am trying to make a huge gap between what I spend and what I earn. By living frugally and saving, I want to be free to do the things I want to do, and say no to the things I don’t want to do. The advice from the FIRE community is to invest in low-cost index funds like Vanguard. Is there anyway to do that in Cayman?

IFP Answer: A combination of index funds with actively managed funds offers the investor better risk adjusted returns while also benefitting from the lower fees associated with index funds. Look for a financial planner that offers platforms that give you access to both, which means you can tailor your portfolio to spread risk across different fund management styles, geographic regions and even different currencies.

You are able to invest into an almost unlimited number of index funds and exchange traded funds, which track a bond or stock market index, with Vanguard, iShares and many other fund managers with an independent financial adviser, who would also be able to assist you with a financial plan that matches your objectives of FIRE, which, without a meaningful plan, is just a nice sounding acronym.

---

Question 2:

I am a single, childless expat earning CI$6,000+ a month, however, my direct expenses here are almost $3,500 and I do have expenses in my home country, where I send US$2,000 a month. I have been trying to save, however, I find it difficult and I would like some ideas of investment options which could assist me in saving.

IFP Answer: The best way to save is to save before you spend. The day you get paid move a certain amount you wish to save (be realistic) into a separate savings account from your transactional card account. Spend accordingly. It’s as easy as that to say but not as easy to do, so you’ll need to do a detailed and realistic budget, track every single expense and use tried and tested budgeting methods.

Look at where you can cut back on unnecessary expenditure as well; there is usually a few hundred dollars at least per month of wastage. Once you have an emergency fund in the bank that is at a level of three to six months of your essential outgoings if possible, you can begin to invest your surplus income each month in an investment and mutual funds chosen specifically for your circumstances.

---

Question 3:

If one is 48 years old and has no assets but also no debt, is there a better chance than a snowball’s hope in hell of being able to retire at some point, and how does one who is financially illiterate get started with investing?

IFP Answer: It is absolutely possible to retire at some point even if you only start now. Most millionaires made all of their money within 5-10 years, so what is stopping you from trying to at least do something about your retirement savings shortfall? Either way, you have no choice but to try, and you’ll benefit tremendously, even if it means semi-retirement. You need to start somewhere, and you need to start urgently. It is great that you do not have any debt. You can now strategically leverage off of this financial position and start investing.

You have the potential for real growth with a 15-20 year investment term and you can start now by investing on a monthly basis from your surplus income, increasing your contributions annually and adding lump sums.

If you feel that you need more knowledge on ways to invest, or are unsure of what to do next, make sure speak to a qualified independent financial adviser, who will provide impartial and comprehensive advice based on your individual circumstances and financial goals.

---

Question 4:

I have about CI$50,000 to invest and considering investing all or some of it in cryptocurrency. Is this a good idea? How do I choose a cryptocurrency to invest in and are there brokers in the Cayman Islands who deal with this?

IFP Answer: You need to ask yourself whether you are a risk-taker. Most people would say they do not want to lose the money they have worked hard to accumulate. Think of your financial situation holistically and determine what you would be trying to achieve by investing all of your hard earned cash in cryptocurrencies. A less risky strategy would be to establish a financial plan for the medium- to long-term, investing in mutual funds that are well diversified by sector, geographical region and assets.

It is never a good idea to put all your eggs in one basket. Without getting into the crypto debate, we would generally not recommend more than 5% of one’s wealth be put into something that could reasonably be called a gamble. As a rule of thumb, the more people talking about something and saying how great an opportunity it is, the more afraid you should be.

Another gauge would be to ask yourself how life would be without that CI$50,000 after losing it on cryptos? That is many people’s reality after the last crash in prices, and cryptos have no underlying value and is in essence worse than fiat currency in that its value is based on the very thing it says it is supposed to replace.

---

Question 5:

My wife and I are Caymanians nearing retirement age but do not have enough in our pension fund or savings to live on for our so-called golden years. However, we own our home outright, which is valued at around $400,000. Is there such a thing as reverse mortgage in the Cayman Islands and how would we go about it? Or is it better to rent the house and live somewhere smaller or sell the house and live on the proceeds?

IFP Answer: This is more a question for your bank in terms of reverse mortgages, but there are many stories of poor old people being kicked out of their life-long home due to complications. These include high upfront and ongoing costs for the contract, spouses having to leave due to the death of the reverse mortgage holder, health problems leaving you out of the property for longer than is contractually allowed, insurance and contract costs exceeding the income of the reverse mortgage over time.

There are more negatives than positives, so it may be better to consider alternatives first with someone who can help you with future cashflow projections and your budget.

---

Question 6:

My business is failing and I don’t think there is any chance of it rebounding. If I wound it down today I would be left with debts of around $40,000, mostly to a local bank. I am in my early 30’s, Caymanian and not going anywhere. Is it better to declare bankruptcy or to work to pay down that debt? It will take me years and will suck up any savings for a mortgage, pension, etc.

IFP Answer: It is always best to speak to your lenders about repayment plans and consideration of declaring bankruptcy. Bankruptcy should always be the ultimate course of action and should not be taken lightly. In many instances you will have to repay the money back anyway before getting a clear credit record, but you also need to consider that they will attach your assets as well as assets of any people that may have signed surety for you.

It would be interesting to find out more about why your business is failing, what could be done and how you could cut back on your other expenses in order to try turn your ship around. There may be a way that you can pay off your debt over the long term as well as saving towards your other financial needs.

Contact Stephanie and Allan or visit International Financial Planning (Cayman) Limited, Grand Pavilion on the West Bay Rd.

Tags: personal financial planning

Category: Advice from experts, Local News