If there is one thing that I have learned about many Barbadians over the years, is that their risk appetite to accumulate wealth is very limited. We live in a predominantly risk averse society, this means that many working professionals at any level of business have one major trait in common. Before I delve into what is noticeable about many Barbadians, let me begin with the why for this behavior. Historical evidence has proven that many individuals have a great fear of losing their accumulated savings. This is understandable given that it takes a longer time frame to accumulate savings of a certain magnitude than it is to lose it.
However, a major problem with having such a fear is that in most instances it stifles one’s ability to maximize generational wealth and therefore eradicates the building blocks for a fantastic financial future. Some of you may be willing to take risk to expand your portfolio and add value to your net worth but this article is not for you. I am here to help those individuals that may have deprived themselves in believing that saving and working hard are enough to build a great financial future.
Many well researched publications are circulated which speak about some of the most successful, affluent, innovative business owners and professionals whom have similar traits which influenced them in becoming wealthy. Life changing practices highlighted by those individuals are; taking on calculated risk and diversifying investment. How many times have you walked into a store, bank or mini mart and heard the notion that our country does not have the opportunities or resources for many individuals to live in financial prosperity and abundance? Those words alone stem from misinformation which has hampered many from seeking out means of direct or indirect investment.
Below is a formula which can be applied to measure your financial situation. The information presented will allow you to assess investment through a different lens and may even change your philosophy to becoming more risk neutral. Currently there are $9.7 billion (Central Bank Financial Stability Report, 2017) in domestic currency deposit accounts within both commercial banks and non-banking intermediaries. This is untapped capital which can be utilized within our Barbados stock exchange to assist publicly traded companies in expanding their operations and project additional value to many consumers. If a segment of that capital is invested in the domestic market it can be submitted that the value per share of these corporate securities will appreciate in the medium to long term. Providing favorable economic conditions growth in a well-managed portfolio is inevitable. According to the Barbados Stock Exchange 2019 Report; Local Market Capitalization grew from $6,701,835,674 year-end 2017 to $7,380,982,354 year-end 2018 which is a net increase of 10.13%.
Another example is provided to capture the essence of taking on calculated risk by individuals in the lower to mid income brackets. Saving just 10% of your salary attributed to a diversified portfolio of local securities at an annual rate of 8% can lead you to becoming a millionaire with consistency in your investment plan.
|Income Percentage (%) for Investment||Monthly Income||Monthly Savings||Savings (yearly)||Rate of Return (%) Compounded (yearly)||Spread (years)||Target|
|10%||$ 1,500.00||$ 150.00||$ 1,800.00||8%||50||$ 1,032,786.28|
|10%||$ 2,500.00||$ 250.00||$ 3,000.00||8%||44||$ 1,070,848.94|
|10%||$ 3,500.00||$ 350.00||$ 4,200.00||8%||39||$ 1,003,553.13|
|10%||$ 4,500.00||$ 450.00||$ 5,400.00||8%||36||$ 1,010,351.60|
|10%||$ 5,500.00||$ 550.00||$ 6,600.00||8%||34||$ 1,046,936.02|
|10%||$ 6,500.00||$ 650.00||$ 7,800.00||8%||32||$ 1,046,865.59|
|10%||$ 7,500.00||$ 750.00||$ 9,000.00||8%||30||$ 1,019,548.90|
|FV of Annuity = P [(1+r) ^n – 1] / r
P = Periodic payment
r = rate per period
n = number of years
The chart above is a guideline on how to become a millionaire in Barbados without having to take on major financial risk. Information presented on the chart outlines how much capital is needed for annual investments at varying salary brackets. A rate of return at 8% is lower than the net % change in Market Capitalization revealed by the Barbados Stock Exchange 2018 (10.13%). The ARR was derived to account for average fluctuations in trading volume throughout the year and changes in market value due to volatility of these financial securities. If you are still undecided, ask your local bank for the annual interest rate on deposit accounts. Now take into consideration the national inflation rate of 3.7% (KPMG Budget Commentary Report 2019) and see if you can still become a millionaire using the risk averse philosophy.