Knowing the right financial asset class to invest in has always been at the heart of investors wishing to earn good returns for their money.
Many, in the quest for higher return on investments have taken up various investment options which they have little or no knowledge about.
The resultant effect of that has either made them get their hands burnt by losing money or have had their investment eroded in the wake of current economic realities, making them afraid of investing further.
This discourse of knowing the right financial assets to invest in took center stage as both financial and investment experts dissected the nitty-gritty of investment at a summit put together by leading financial services firm, Investment One, to commemorate the Social Media Week in Nigeria’s biggest commercial city, Lagos.
According to the experts who spoke on the need of investing, the first step into taking a right investment decision is “risk profiling”.
By profiling risk, the decision to invest in any financial asset should be in line with an investors investment goal.
For short term investors looking to get returns within a one-year period, they could consider investing in financial assets like treasury bills, which is seen as a Federal government risk free asset.
For long term or value investors, they could decide to invest in the stock/equities market, to share in the risk and gain of a quoted company, thereby benefiting from the company’s growth in terms of capital appreciation and dividend yield.
Retail investors, those with small money, wishing to invest, are also not left out as they are open to investing in mutual funds, and make good returns, particularly the money market mutual funds.
Impact investors are open to investing in various infrastructural bonds, used for the development of the economy like the Sukuk bonds; while investors who wish to hedge against any form of currency risk, can invest in dollar funds.
“Investment is for everybody who wants to get returns by putting their money to work, as opposed to many who believe it is done by only the rich,” Tope Omojokun, managing director who oversees the mutual funds and retail investment business of Investment One said.
“To reap the benefits of investment, one needs to be educated on it, having in mind that there are various options for one to invest in no matter the amount of money one has,” Omojokun said in a panel session when educating millennials on the benefit of investing.
Tomie Balogun, founder, The Vestract Company, a financial education and technology company, said Investment is the only way one can learn how to put money to work and if one doesn’t understand how investing works in the economy, then one is basically just sitting on a tree.
“If you want to move forward, you have to learn how to make the best use of your money and investing is the best way to do that hence, as much as possible, I advise people to learn about investing,” Balogun said.
With inflation touching 22-months high at 12.13 percent in January, based on data from the National Bureau of Statistics, many investors have been left with nothing to cheer as their returns have been eroded in the wake of increasing commodity prices.
Nigeria’s financial regulator, the Central Bank, in a bid to boost lending to the real sector of the economy and reduce the cost of credit, restricted non-bank local investors in the likes of the Pension Fund Administrators (PFAs) and the insurance players, from investing in its N14 trillion Open Market Operation Bills (OMO), a kind of short-term instrument issued by the CBN.
This singular move culminated into making local investors increase their exposure into various financial assets like in equities and treasury bills.
Yields on one-year treasury bills have crashed to as low as 6 percent, based on FMDQ data, bringing real yields (inflation minus NTB) to around -6percent.
Moses Hammed, research analyst, Investment One, said despite the higher inflation, it is still in the best interest of people to invest and get returns than stashing their money at home, as the former would make them better-off.
Hammed noted also that in spite of the downward trend seen in the Nigerian equities market which is a reflection of the performance of the broader economy, many investors are still raking in higher returns with the help of the right knowledge, guiding them in investing in those company’s perceived as having the right fundamentals.
“As an investor, your duty should always be to ask of the risk involved before you can be looking at the returns on the risk, as those who mostly sought after returns in most times, get their hands burnt,” he explained
The formation of an investment club can go a long way in helping shape people’s knowledge of investing, according to Ola Brown, a medical doctor, and trainee helicopter pilot who founded West Africa’s first indigenous air ambulance service, the Flying Doctors Nigeria.
“I do not believe that taking a higher risk would give you a higher return. When you access your risk profile, you need to look at what kind of return is there in the market that you are in, the currency you are investing and what you want to take out from it. Stop putting your mind that the higher the risk, the higher the return,” Brown said, citing the dangers of investing in Ponzi schemes, whose sole aim are for juicy/higher returns.
According to her, if one wants to take on a higher risk investment, one should stagger portfolio by making sure one puts some in safe asset.
She urged millennials on the need to develop the right savings culture as data has shown that Nigeria despite having a huge and growing population, savings as a percentage of GDP is still low, even lower than some poorer African countries.
The investment experts noted that people should see the services of a registered and regulated fund managers and portfolio managers before making investment decision, as these professionals would help in guiding them on the right kind of asset class to investing in depending on their risk profile, age, goals and current economic realities