The University of the West Indies, Mona

In order to gain the financial freedom that you truly desire, you have to let your money work for you. Small amounts of money, if invested wisely, can add up to large sums of money over the foreseeable future.

The first thing to remember is that saving your money at home is the worst option. We know that the colloquial saying, 'Save your money under your mattress for a rainy day,' gives your money no room to hedge against inflation. It is even better to deposit your money because you earn marginal interest rates if the bank does not overcharge unnecessary fees.

Is It Better To Save In The Bank?

Money saved in deposit accounts is also not the best option. These idle monies lose value every day as a result of inflation. Deposit-taking institutions normally compensate depositors with very low rates of interest on their accounts, sometimes just one or two percent per annum, which is insufficient to cover the opportunity cost of holding your money in the bank. Neither is it enough to compensate for the loss in real value arising from inflation. If, for example, the inflation rate for the year is four percent and the deposit interest rate is two percent, then the real value of your savings is two percent less at the end of the year than what you began with. Only keep money in your deposit account if you plan to use it throughout a particular period of time; it is not for appreciating savings.

Note that if inflation in a given year is greater than the rate of interest, then the real value of your savings falls. You do not want this to happen to you.

Other Types Of Investments

There are several other types of financial instruments/investments that might lead to a greater rate of return than a basic deposit account. These include certificates of deposit (CDs), bonds, money market deposits, stocks, mutual funds, investment portfolios, Forex trading, stock trading, and, more recently, digital currency.

Certificates of the deposit will provide a better rate of interest than a regular deposit account.

Bonds are issued by the Government mainly as a promise to pay at specific maturity dates at a specific rate of interest. Bonds normally earn a higher rate of interest than a regular deposit account and CDs and are normally less risky than stocks.

As the Jamaica Stock Exchange continues its bull run it is essential for Jamaicans to take advantage of the lucrative investment opportunities that the stock market presents.

If you have idle money, it is best to invest in stocks or bonds, where you can yield a higher rate of return on your investment. Furthermore, if you invest in stocks, you have the possibility of receiving capital gains - an increase in the value of the stock arising from an increase in the company's net worth and long-run profitability, as well as dividend yield arising from the company share of profits. Either way, the real value of your savings is increasing as time progresses. Therefore, instead of saving in deposit accounts, ask your bank to open a stock market account, or ask them for an adviser to open a stock portfolio.

Who Can Trade Stocks?

Everyone can trade stocks if they understand what to do, but most people don't, so it is best to rely on a broker and/or an adviser who has a more systematic understanding of the stock market and is therefore in a better position than you to trade stocks efficiently. Your broker will help you are select the best stocks to buy at the best time and help you create a balanced portfolio. Brokers sometimes solicit investments and create mutual funds with a portfolio consisting of a variety of stocks, bonds and/or money market instruments.