A reader asked the question: “I have $40,000 sitting in a local bank account, just doing nothing. Can you advise on best investment options to yield a higher rate?”

The first part of the answer was published on June 10, this is part two. In the first article we found that our reader has been diligent. She does have her financial ducks in a row. See our discussion on contingency planning in part one, a web link is provided in the sources section at the end of this article.

However, we must make some additional assumptions. Our reader, also:

• most importantly is not a US citizen, US green card holder, a US tax resident, or foreign person with significant US holdings or connections, such as an investment property;

• is fairly conservative, but might split the savings into two pots, one being conservative and the other a bit more aggressive;

• is 15 years away from retirement;

• continues to save fiercely and does have a “duck” cash buffer;

• does have a mortgage;

• is single and self-supporting;

• is also invested in the Bermuda National Pension scheme.

Her current investment is a savings account. Face it, this is a zero-return choice that is nowhere near keeping her purchasing power level with her personal Bermuda inflation rate. A rate that, in my opinion, is far greater than the 1.7 per cent declared by the Bermuda Department of Statistics in the Consumer Price Index for April.

Let’s assume that our reader wants to keep pace with inflation, possibly a bit more like a return of between 4 and 8 per cent annually, or is that too much risk? Note: only shares of funds in this range are included.

Our reader has a few other requirements:

• nothing too risky

• prefer investments that are pretty diversified

• security structure is fairly easy to understand

• will consider working with a qualified adviser

• liquidity is important, our reader also wants to be sure that getting out of these investments is easy.

Let’s review some choices, availability and firms. Please also consult the sources listed at the end of this article.

Local shares investments.

They pay dividends and we know these companies as we use their products every day. Here is a list of those with dividend yields of about 4 to 8 per cent.

Argus Group Holdings sell at $4.45 and have a yield of 8-9 per cent.

Ascendant Group Limited sell at $9 with a yield of 3.9 per cent.

Bermuda Aviation Services sell at $2.45 with a yield of 8.1 per cent.

BF&M Ltd sell at $20.60 with a yield of 4.27 per cent.

Butterfield Bank sell at $33.50 with a yield of 3.82 per cent.

Watlington Waterworks sell at $20.50 with a yield of 2.43 per cent.

Polaris Holding Company sell at $5 with a yield of 4.8 per cent.

There is liquidity. The selling and buying of Bermuda shares is relatively easy, and information is listed on the Bermuda Stock Exchange. Various firms offer brokerage accounts to purchase shares, including Butterfield Asset Management, Barrington Investments, and LOM Offshore Investments.

Bermuda-listed balanced mutual funds.

Traditionally, the balanced mutual fund asset allocation is comprised of 50 to 60 per cent equities (stocks), 30 to 40 per cent bonds, and up to 20 per cent cash, with the combinations equalling 100 per cent.

The allocated securities within may be comprised of individual positions in stocks and bonds, very low-cost index funds, or exchange-traded funds, selected according to the experience, and performance preferences of the portfolio manager. The long-term rate of return averages 5 to 6.7 per cent.

You can learn more in the four-part series sourced at the end of this article. Keep in mind that the detailed reports are more than a year old. You can get current fact sheets from any of the following providers, AFL investments, Barrington Investments, BIAS Investment Managers, Butterfield Bank, Butterfield Asset Management, HSBC Bermuda Investment Centre, and LOM Offshore Financial Services.

Wealth builders provided by Bermuda pension providers.

These funds are built on a savings accumulator pattern. They are invested according to your personal risk profile where participants are encouraged to deposit, or possibly have payroll deductions each month into these plans. See each provider for details. They are Argus Wealth Builder; BFM Individual Savings Plans; Colonial Group International — Individual Investment Plan; and Freisenbruch Meyer Investment Services.

Additional voluntary pension contributions — a.k.a the mortgage payoff plan.

This is an interesting concept put forward by another reader who paid in as much extra voluntary contributions as allowed into his Bermuda National Pension plan consistently for the last 15 years (between the ages of 50 and 65). At retirement age his managed portfolio had grown his voluntary contributions, cashing out without penalty, sufficient to pay off the final balance on his mortgage. A no-debt retirement plan.

Investment in yourself. Why not?

Use savings to attend online university undergraduate or graduate courses to increase compensation. This too is on wonderful appreciating asset — you.

Improve your job skills and validate your working experience.

We assume that this individual may continue to want to work at a job that utilises her significant experience. The chart of lifetime earnings per professional job grades (link is in the sources section) shows a big payoff. Education achievement is reflected in lifetime earnings.

It is worth consideration as a graduate degree may accumulate lifetime earnings almost four times greater than high school graduate.

Investor beware.

Some investments just may not be suitable for this reader, such as penny stocks, high-yield bond funds, private equity funds, currency market trading, options, some hedge funds, do-it-yourself investing in a small range of aggressive US stocks, and the like.

These strategies are generally considered higher risk, require more personal capital upfront and later in the case of private equity funds, and are incredibly susceptible to market volatility, such as currency trading and options. Participation demands a certain level of investor experience and considerably more time to understand and monitor.

Finally, I want to thank the reader who posed the question for being so proactive.

Sources:

The first part of this article can be read at https://tinyurl.com/ybjp8dor

Mutual fund articles:

Part 1 — Balanced mutual funds options in Bermuda. Go to https://goo.gl/NnGjES

Part 2 — Keeping your mutual fund fees low: https://goo.gl/ZpK4X7

Part 3 — Balanced mutual funds: https://goo.gl/chqjVZ

Part 4: Balanced mutual fund options in Bermuda: https://goo.gl/NnGjES

Lifetime earnings per professional job grades: https://tinyurl.com/ya7qy6qj

Disclosure: the author does not own, or sell, or receive any remuneration for providing information on these products. Note also that constrained space does not allow me to list providers’ complete details

Martha Harris Myron CPA CFP JSM: Masters of Law — international tax and financial services. Pondstraddler Life, financial perspectives for Bermuda islanders with multinational families and international connections on the Great Atlantic Pond. Contact: martha@pondstraddler.com