Avia Collinder, Business Reporter

AT 47, Steve lost his job mid-year as his firm contracted, but got a sizeable chunk of cash as severance.

He made a personal trip to the Bank of Jamaica and placed 75 per cent of the windfall on an 18-month government bond priced at 17.35 per cent, and invested the other 25 per cent with a local investment firm which offered him 16 per cent guaranteed over five years with the possibility of doubling the initial lump sum if he did not touch interest payments.

At 42, Germaine who was separated from his job of 20 years, placed $1 million of his redundancy payment into an investment vehicle, which also offers guaranteed returns over five years. The investment is based on a real-estate fund.

He admitted to using some of his windfall to pay outstanding school fees for two nieces enrolled in university, giving his old car a new paint job, changing out old furnishings in his home and replacing them with new.

Secured employment

He is also thinking of starting a small business but is not absolutely certain what to do yet.

Fortunately, he notes he has secured employment, and has no need to pay monthly expenses from his windfall.

Some 40,000 Jamaican jobs have evaporated in the current recession, according to Prime Minister Bruce Golding.

With several billion of dollars of redundancy money entering the financial system in 2009, the question of how laid-off workers have actually been investing severance pay is a matter of interest.

Were they deposited as savings and money-market investments, or were they spent on consumer items? Still yet, were the monies used to start new businesses?

According to the Ministry of Labour and Social Security (MLSS) the number of redundancies reported to the ministry from last June 2008 to October 2009 was 16,478.

The redundancy programme for some 900 permanent employees of bauxite giant Alumina Partners was projected to cost some US$25 million. And laid-off sugar workers received a $2.7 billion redundancy package .

The divestment of Air Jamaica is also slated to cost US$30 million (J$2.7 billion) in redundancy payments. Many other payouts made to workers are unknown.

Are these funds likely to enter and remain in the system as savings, or will unemployed workers use the payments as subsistence income?

Lump-sum investment

Michael Thompson, financial adviser with Sagicor Life Jamaica, which manages the largest chunk of pension funds in the private market, said that in the main, those who had been made redundant and had gone to him had set aside one-quarter of their cash in a lump-sum investment.

Several, he said, put aside $1 million, which can earn them another $1.7 million in five years, tax free, at 15 per cent interest if the quarterly interest remains untouched. Quarterly earnings are in the region of $39,890 on $1 million.

They had also placed money in bank accounts for easy access and bought insurance policies, which will also accumulate cash value over time to be used as a financial cushion for family members.

Researchers at Mayberry Invest-ments state that those who have come in for advice have been using their funds to upgrade their education and job skills, to start a business or retool an existing 'side' business that is now their full-time occupation.

Retirement savings

They have also apportioned funds towards 'staying liquid' by buying treasury bills, local registered stock and repurchase agreements.

Others have considered retirement savings products with a mixed portfolio that includes a variety of assets, while some have chosen to expand or refurbish real-estate holdings.

According to Thompson of Sagicor, laid-off workers are not the only ones who are investing more in 2009.

"People are wising up," he said. "They are thinking that instead of eating six dumplings, they can eat four and invest the difference. Jamaicans are consuming less and saving more."

Thompson believes that the demise of Cash Plus and Olint and similar investment schemes have also persuaded many to have more confidence in more traditional savings and investment vehicles.

Omoi Green, executive wealth adviser with NCB Capital Markets Limited in Mandeville, says, based on his experience, "Most people view their lump-sum payments as their pension and opt to reinvest it in a retirement plan rather than investing in government paper."

He advises that breadwinners who lose their jobs should be "open and honest with family members so that they can understand why money cannot be spent they way it used to".

Then, he said, they should seriously examine expenses by completing a detailed budget to determine what expenses can be cut to fit income, which will, in most cases, be smaller.

"In relation to investments, it is necessary that you first put aside a sum of money equivalent to at least six month's living expenses," said Green.

"This can be placed on a repurchase agreement where there is easy access but still getting a reasonable return. The balance can be placed on a government paper where you will get a cash flow as these instruments usually pay interest periodically."

The investment adviser believes that individuals should also hunt for opportunities to earn additional income.

"Consider starting a business and develop a detailed business plan after doing much research. If it is in the area of manufacturing or farming, you may be able to access a loan at 10 per cent, given that you satisfy all the requirements. This will create more new jobs and alleviate the fiscal constraints facing our country," he said.

avia.collinder@gleanerjm.com