Stories by Chinenye Anuforo
Have you decided to invest in the stock market? Then you must know that investing in stocks has always outperformed investing in bonds, treasury bills, gold or cash over the long term.
In the short term, one or another asset may outperform stocks, but overall, stocks have historically been the winning path.
There are so many ways to invest in stocks whether individual stocks, mutual funds or ETFs among others. But, how can you decide what is right for you? This will address several issues that you, as a new investor, might want to consider so that you can be rest assured while letting your money grow.
Are you a risk taker, risk averse or in the middle?
You may be eager to get started so that you, too, can make those fabulous returns you hear so much about. But, slow down and take a moment to contemplate some simple questions. The time spent now to consider the following will save you money down the road.
What kind of person are you? Are you a risk-taker, willing to throw money at a chance to make a lot of money, or would you prefer a more “sure” thing? What would be your likely response to a 10 per cent drop in a single stock in one day or a 35 per cent drop over the course of a few weeks? Would you sell it all in a panic?
The answers to these and similar questions will lead you to consider different types of equity investments, such as mutual or individual stocks. If you are naturally not someone who takes risks, and feel uncomfortable doing so but still want to invest in stocks, the best bet for you might be index funds. This is because they are well diversified and contain many different stocks. This reduces risk – and doesn’t require individual stock research.
How much time and interest do you have for investing?
Should you invest in funds, stocks or both? The answer depends on how much time you wish to devote to this endeavor. Careful selection of mutual or index funds would let you invest your money, leaving the hard work of picking stocks to the fund manager. Index funds are even simpler in that they move up or down according to the type of company, industry or market they are designed to track.
Individual stock investing is the most time-consuming as it requires you to make judgments about management, earnings and future prospects. As an investor, you are attempting to distinguish between money-making stocks and financial disaster. You need to know what they do, how they make their money, the risks, the future prospects and much more.
Therefore, ask yourself how much time you have to devote to this enterprise. Are you willing to spend a couple of hours a week, or more, reading about different companies, or is your life just too busy to carve out that time? Investing in individual stocks is a skill, which, like any other, takes time to develop.
Do not put all eggs in one basket
It is best that you not be exposed to only one type of asset. For instance, don’t put all of your money in small biotech companies because the potential gain can be quite high, but what will happen to your investment if the Food and Drug Administration starts rejecting a higher percentage of new drugs? Your entire portfolio would be negatively impacted.
It is better to be diversified across several different sectors such as real estate, consumer goods, commodities, insurance, etc., rather than focus on one or two or three, as above. Consider diversifying across asset classes as well by keeping some money in bonds and cash, rather than being 100% invested in stocks. How much to have in these different sectors and classes is up to you, but being invested more broadly lessens the risk of losing it all at any one time.
A portfolio with individual stocks
If you are investing in individual stocks, a portfolio of 12 to 20 well-chosen ones will give you plenty of diversification and probably will not be too many to follow regularly. However, you will need to ensure that you fully understand each company, from its businesses to its risks. If you plan to invest in only stocks, make sure to spread the funds across different sectors such as health care, technology, small cap and big cap.
If you don’t have the time or desire to pick as well as follow many stocks, consider investing in a mixture of mutual funds and individual stocks. Another consideration, especially if starting out with limited funds, is that investing in 12 to 20 stocks may not be feasible. Therefore, having the majority of your money in funds would provide the stabler returns they tend to generate. Adding in maybe a half dozen individual stocks could give your portfolio an extra kick.
Time to invest
Once you’ve determined the shape of your portfolio, it is time to invest. Find a broker you are comfortable with, call and talk with this person if necessary. Then fill out the paperwork, deposit some money and the broker will take it up from there.
After deciding what to buy, don’t buy all at once: enter slowly. What if you invested all your money just before a market downturn? Being in the red that quickly wouldn’t do much for your confidence. Plan to take several months to invest all of your money to minimize any market timing risk. Finally, remember to set aside time each week to review or catch up on the news for your investments.
Keep adding
As your experience grows, your asset allocation decisions will probably change. You could adjust your portfolio on a regular basis, say every year or so, by selling some of one type of investment and buying more of another. You could also adjust your portfolio by adding additional funds to those areas in which you want to increase exposure.
These additional funds can be used to expand the number of securities you hold or can be added to existing holdings. Do this on a regular basis and before you realize it, you’ll have a substantial portfolio that will help fund your retirement, pay for a second home or meet whatever goals you set when you started your investing journey.
Source: Investopedia.com
‘Volatility in foreign exchange, reason for drop in FPI’
The Director of Investment Banking, Chapel Hill Denham, Mr. Ayo Fashina, has attributed the drop in foreign portfolio investment (FPI) in the country to volatility in foreign exchange market.
At a panel discussion organised for industry leaders at the Nigerian Stock Exchange (NSE), Fashina said, “The Nigerian economy is driven by the capital market hence the NSE is currently constituted by 50 per cent foreign investors and 50 per cent local investors, and that the market is now coping with only the 50 per cent local investors while the 50 per cent foreign investors have taken a flight for safety because of uncertainty of rate of foreign exchange.”
Continuing, he added that unless the exchange rate issues are fixed, foreign investors will not come to invest.
Fashina also urged the Federal Government to shelve the idea of borrowing from the international market considering the devaluation of naira adding that there is no need to borrow money when the country has assets to sell.
The Federal Government had said it would borrow $1billion from the international capital market to fund its expansionary budget and stimulate economic growth as inflation, slow growth and other challenges continue to hammer the economy.
According to him, the Assets Management Corporation of Nigeria, AMCON, has over N3trillion assets with the Central Bank of Nigeria (CBN), adding that the government, the banks and the regulators have to converge and help the country out of the current recession.
He said that banks are already liquidity strapped and the CBN needs to unlock liquidity in their balancesheet.
“If a foreign investor came in now, the same micro fundamental that happened in 2009 is happening now. Until the CBN issued special analysis of the banks because I am not sure that the assets are right, some banks instead of qualifying their loans, they are putting them into watch list, “how long will they continue to keep them in the watch list?”
In his own contribution, an economist and policy analyst, Dr. Ogho Okiti, said the country has not exited the problem of 2009 when AMCON was created, saying the Non-Performing Loans (NPLs) have continued to increase.
He said, “I don’t know the facts from the banks. The stability and profitability of the banks are very weak. I hope we don’t repeat the same mistake of 2009.
“We have seen the symptoms and we don’t know how deep it will be. I am not saying the CBN is not going to bail out banks, but banks NPLs have continued to increase.”
Guinness Nigeria donates water, sanitation facilities to Bauchi
In a renewed bid to deepen health and sanitation practices, Guinness Nigeria Plc and WaterAid Nigeria have partnered to construct two solar-powered water facilities in Gwam, Ningi Local Government Area of Bauchi State.
The Guinness Nigeria/WaterAid Gwam water facility, which was formally unveiled recently, is one of two major water schemes, that the brewing giant has delivered this year in collaboration with its international NGO partners, and the 34th site for the Guinness Nigeria, Water of Life initiative in Nigeria. The Gwam water scheme comprising two solar-powered boreholes and two blocks of toilets will benefit about 20,000 people.
Guinness Nigeria’s Corporate Relations Director, Mr. Sesan Sobowale, used the occasion to reiterate the company’s commitment to initiatives that improve access to safe water. In his remarks, he noted that Guinness Nigeria will continue to play a leading role to promote water stewardship in Nigeria while thanking WaterAid for its transformational work in promoting health and hygiene in the country.
“Diageo’s water blueprint articulates the role we will play as a business to tackle a wide range of water-related issues both in Nigeria and globally. In furtherance of this blueprint, Guinness Nigeria has prioritised interventions that improve access to safe water especially in communities that face acute water scarcity. We have also invested in technologies that help us manage our water use. The construction of the Gwam water scheme is in furtherance of our efforts to help more Nigerians access clean drinking water. Our hope is that by improving access to clean water, we can help people in Gwam community improve their hygiene and overall wellbeing,” Sobowale said.
Also speaking, the Commissioner for Water Resources, Bauchi State, Alhaji Mohammed Ghali Abdulhameed, expressed the state government’s gratitude over the newly constructed water scheme. He also observed that the water facility will support the state government’s drive to improve health and hygiene for Bauchi State citizens, saying “this intervention is indeed timely and commendable. Water is an absolutely essential resource that is vital for the health and wellbeing of our citizens. We, the people of Bauchi State, are therefore delighted that Guinness Nigeria and WaterAid have joined forces to improve access to safe water in our state. We are immensely grateful for this intervention,” he said.
In her remarks at the event, WaterAid’s International Chief Executive, Ms. Barbara Frost, underscored WaterAid’s vision to help create a world where everyone, everywhere has access to safe water, sanitation and hygiene.
She said, “it is great to see that the Bauchi State government, Guinness Nigeria and WaterAid are working collaboratively to tackle the challenge of water scarcity in Bauchi State. I would like to thank the government of Bauchi State for creating a conducive environment that has enabled WaterAid to implement its programmes in the state. WaterAid will continue to partner various stakeholders in Nigeria to transform lives by improving access to safe water, hygiene and sanitation.”