As you seek avenues for capital appreciation, please ignore instruments that promise unrealistic returns.

These are truly perilous times. We are bombarded with a rare combination of high inflation, low interest/ investment yield, currency devaluation and stagnating personal incomes. In Nigeria, inflation has reached exceeded 13%, heights we have not seen in years. Meanwhile yields on money market instruments are at a record low. The popular Federal Government Treasury Bills (TBs) that used to be the darling fallback position of investors is delivering a mere average of two percent per annum. This means that cash invested in TBs would buy 11 percent less goods next year than what the same amount would buy this year because, whilst the fund may have grown in nominal value, its real value has been eroded by inflation. In addition to these things, the increases in petrol prices accompanied by increases in electricity tariffs have dealt a double whammy on our purses. But survive we must. We should even do more than survive, we must thrive. We need to protect the nominal value of our investments as we strive to find ways to increase their real value.

We should consider strategies for capital preservation before looking at opportunities for capital appreciation. We must defend the nominal value of our investments through careful portfolio management. Our first strategy would be a flight-to-safety. Investments in well known, proven assets managed by well known, proven managers. Stay with the familiar, those with good, verifiable track records. This is not the time to experiment. With the record low interest yields coupled with the currency devaluation, many are being lured with new investment options. We must be even more careful than before, exercising the utmost due diligence and caution. If in doubt, do not deal. Even the familiar, proven investments must be reviewed more frequently than before.

The lockdown has had severe negative effects on many businesses; therefore, the companies who were faithfully delivering good returns may not be able to continue. If we cannot relax with familiar investments, how then can we trust new ones? We must monitor the economic sectors we have invested in, to confirm their continued viability. If we choose to invest in new assets, we should not rely on investment advisors alone, because many of them earn a commission if you invest in the assets the recommend, therefore their advice may be self-serving at times.

If we have the luxury of time, a second capital preservation strategy would be long-term investing. Investment yields always even out in the long term; the graph of highs and dips usually result in a healthy average, but only over a considerable period of time. So, investing long term in good equities would enable you ride the highs and lows and achieve not only capital preservation but also capital appreciation from reasonable investment yields.

The common strategy for protecting investment portfolios against erosion by inflation is to invest in inflation-indexed bonds. These are money market instruments that guarantee yields above the inflation rate. The fund managers of such instruments invest the pooled funds in equities, commercial papers (CPs), and derivatives.

Whilst some company equities may not deliver good returns in the current economic environment, CPs and derivatives can still manage to deliver above 13%, the only concern would be the availability of enough of such assets in the market. With the Central Bank of Nigeria generously supporting the market with single-digit loans, fund managers may not be able to find enough assets that can deliver yields above 13 percent per annum.

Capital appreciation requires a more careful assessment of both the asset and the asset manager especially at this time. Even you choose to invest in new asset classes; the assets should be new to you the investor, not new to the investment market. This means each asset and each asset manager must have a verifiable track record that you can review and conduct your due diligence on, before arriving at the decision to invest.

In this column, we have spoken several times on crowd funding instruments. Readers have reached out to me privately for recommendations, but I prefer that people do their own due diligence and be personally convinced before spending their money. Agriculture is a profitable venture because human beings would always eat. Sadly, some investors attempt to invest directly into farming without sufficient prior knowledge and so lose money. Investing in agriculture through a crowd funding platform may be the way to go at this time.

As you seek avenues for capital appreciation, please ignore instruments that promise unrealistic returns. Let us avoid the risk of losing money so that we can at least achieve capital preservation.

Happy investing.

IDENTITY theft is the crime of obtaining a person’s personal or financial information with the sole purpose of assuming the person’s identity and carrying out financial transactions with the assumed identity. It is probably the fastest growing crime globally. Accounts are hacked and information like card details, bank account details, BVN, passwords, email addresses etc. are stolen. Online purchases are then made. In this post-COVID era, we cannot conveniently side step online shopping or having our financial information travel through cyberspace. But we can avoid being victims of cybercrime by keeping our electronic financial information and transactions safe.

Start with your device. Ensure your phone, tablet, laptop or PC has the latest version of anti-virus, spyware and malware protection. So that it will alert you if you visit a compromised webpage. Buy the best product and update it regularly. Scan your device frequently to ensure it remains secure because new spyware is being created daily.

Shop only at well known sites or the sites of vendors you can personally vouch for. You should not only vouch for their personal integrity but for their corporate governance standards that ensure they have installed the best up-to-date firewalls and protection on their websites to reduce the dangers of hacking, and that the information you input is encrypted end-to-end. They must publish this assurance visibly on their website. If this assurance is not available, you should explore other ways of payment – PayPal, Alipay, Amazon Pay, bank transfers, etc. These third parties who have invested in adequately secure payment infrastructure can collect the payment on behalf of the vendor. The vendor gets the money while you keep your information safe.

Obtain your mobile banking apps only from Google play store or Apple store. Avoid downloading apps from banks’ websites, and certainly not from third-party websites. Do not stay permanently logged in to mobile apps. Do not initiate auto-login nor allow your device to store your login details. Switch off Bluetooth when conducting financial transactions, in fact switch on Bluetooth only when needed. Keep your device itself locked when not in use, initiate auto-lock feature. Unlock it using both a PIN/ pattern and a biometric ID e.g. fingerprint. Banks too now have the biometric access option, so we can safely lock both the device and the app. Audit your bank statements regularly to fish out strange transactions.

Avoid inputting your payment card details in the presence of others, including members of your household. If you cannot guarantee continuous privacy every time you shop, you can input your card details into your Google account once. Every time you want to shop after that, Google would automatically furnish the information. It would fill in the card details but anyone looking at the device screen would see significant parts blocked out. We must treat our payment cards like we treat cash. Since we would not leave our cash lying around, we should not leave our ATM card lying around. We must not share our PIN with anyone. It is personal to your identity and should only be known by you. If you feel that your PIN has been compromised, change it immediately. Do not use an ATM with any gadget attached to it, it is probably a skimming device that copies the information of all cards inserted into the ATM. Always collect and destroy your ATM and POS receipts. Do not respond to suspicious emails, they may contain spyware that would steal financial information from your device.

Avoid using shared devices for financial transactions. If you must, clear the browsing history when you finish. Also never use free WI-FI or questionable ISPs, many are not encrypted. Instead, use the service provided by your Mobile Network Operator by using your phone as a mobile hotspot. If you must use a free WI-FI, ensure you have a good antivirus that can alert you on its insecurity.

If you suspect a breach of your data, report without delay to your financial services providers, so that your cards can be hot-listed. Cancel cards and replace. If a card has already been used, contact the vendor for help with recovery (e.g. delivery address of goods sold). Ask your bank for your recovery rights. You are not liable for transactions conducted after you report the breach to your bank. Close bank accounts if unauthorized online transactions have been conducted in them and open new ones. Use new alphanumeric passwords. Move your subscriptions and standing orders to your new account/ card. Exercise due diligence and caution in managing your information and transactions.

Electronic financial transactions are convenient and easy. Let us do our part to make them safe. Happy investing.

EVERY year about this time, we discuss back-to-school financing because our children are about to commence new academic sessions and this usually brings with it heavy spending on fees, books, stationery, uniforms, materials,and accessories. This year has been a tumultuous year firstly for parents as our income sources were seriously threatened, depleted or in some cases totally dried out, secondly for children, who endured social traumas cocooned in closed places, and many were unable to get the sound academic trainings their young minds need. Thankfully, schools are resuming now and hopefully, they will be able to catch up.

We have always recommended starting early to prepare for September through target savings accounts. These accounts (in-bank, trust and insurance companies,finance houses etc.) encourage small but regular savings towards a target event; so that the financial burden is spread out and eased. Target savings accounts are also useful for other financially heavy expenses like annual rents, weddings, perinatal care etc.However, many of us may have had to dip into these savings during the lockdown. We must therefore look for other ways to reduce our current school expenses.

In previous years, many school proprietors would consider a discount if a parent has two or more children in one school. Others were willing to give discounts to parents who can afford to pay the full session (three terms) fees in September. However, schools were one of the most badly hit sectors during the lockdown. Their income sources dried up completely. Many had to put their staff on half-pay or no-pay. Therefore, it may be near impossible to expect them to offer sizeable discounts at this time; but parents should still request. Nothing ventured, nothing gained. Besides, the schools know that parents also suffered income and job losses during the lockdown.

Apart from tuition, other hefty expenses are textbooks, school- branded stationery, uniforms, sportswear etc. Parents need to consider hand-me-downs from older siblings, so long as the items being handed down are well preserved and would not cause embarrassment to the receiving child. However, some textbook publishers are frustrating the hand-me-down culture. They change pages of topics and move chapters around without changing any of the learning material in the textbook, all so that children using another edition of a book cannot flow along with their classmates. Their antics may not work in this post-COVID session. When we buy new uniforms and books, we need to label them well (not too conspicuously as to cause embarrassment) so that it can be returned to the child if lost. Backpacks, pencil cases, math sets, sandals, socks, and stationery should also be appropriately labelled.

Many parents pay for school lunches without asking if they can opt out. Packing lunch for children may seem like an additional task that parents are unwilling to add to their morning routines. But calculate the monetary gains and see if it is worth your while. Home-packed meals are usually cheaper, healthier, and fresher than school meals. Try a main dish with a small fruit and a dessert (e.g. biscuit or cake); the uniqueness would make your child very happy.

With the increased cost of petrol, car-pooling must become our culture. It does not make any sense for every family to take their car to pick up one or two children, when the cost of this pick-up can be spread thin amongst groups of families. Children who live near each other and go to schools close to each other should be organized into car-pools to save money. The necessary security clearance should be obtained from schools as required so as not to frustrate the car-pooling initiative.

The lockdown brought us fully into the e-learning age. Many children attended classes virtually using devices owned by their parents, who were also at home with them then. As schools resume, the expected trend is that teachers would continue to give assignments online and students would also submit online. Save money by not buying children top-of-the-range products to take to school. Firstly, children need to learn that getting luxury items is a result of hard work. Secondly, many of them are unable to care for these devices properly and they soon malfunction. Thirdly, a luxury item is a target for thieves – students, teachers and support staff can easily steal these devices. Therefore, it is best to buy cheaper but good and sturdy devices that would serve your children well.

We need to manage our finances creatively in this post-COVID era so that a little would go a long way. Happy investing and happy new school year.

In this time of economic slowdown, there is a need to look at new ways of managing our finances in line with the current economic realities. Many small business owners have their revenues compromised, and the incomes of the self-employed have been particularly decimated by this lockdown.

There is therefore a need to revisit our personal spending budgets. Budgets are derived from income, so if income has changed then the budgets must change. We may not be able to reduce the expenses on essentials; in fact, these may actually increase because of the need to stockpile supplies. However, our costs of feeding may reduce because we cook all our meals at home and have eliminated expensive restaurant/ takeaway foods. Entertainment costs for movies, partying and clubbing would reduce since we cannot go out. However, these would be replaced by the cost of WIFI in order to keep the family occupied as they stay indoors. As we stay at home, let us ensure we have adequate (not too much) cash for small purchases in the local markets and neighborhood kiosks that do not have POS machines.

We would need to rework our financial goals if our incomes have reduced or our short-term priorities have changed. Our mid-to-long term goals should remain the same, but the target dates of achievement may need to be extended.

This lockdown is presenting novel ways of generating income. Let us come up with creative ideas. Some people are holding online seminars aka webinars and charging a token fee. If you are a respected guru in your field, charging the bored and idle populace a meagre N5,000 to share your wisdom would be seen as an extremely generous offer. Payments are made upfront directly into your bank account and access to the webinar is granted only after payment. Each access is unique to each payment using a unique QR Code. If 100 people register for the webinar, you and your banker would be smiling. Other service providers like interior decorators, life coaches, Maths teachers etc. are selling their services online in unique ways. Some people are doing so well that they may not go back to their regular 9-to-5 jobs after the lockdown.

A few of us have loan repayment obligations which we may no longer be able to meet due to our reduced income. Do not ignore them and assume your creditor knows “what is going on in the country”. Be proactive. Engage your creditor and negotiate favorable loan rescheduling terms. The Federal Government and the Central Bank are already championing this, so rescheduling should be easier now than at other times.

How about our personal health and medical care? This pandemic brings to the fore the need to have adequate health insurance for the whole family. We may also need to buy other types of insurance. For instance, the self-employed could consider taking life insurance policies that pay them a salary when they are unable to work and earn an income. Please speak to an insurance broker on the various types of policies and the benefits of each type, so you would know the ones that suit your peculiar situation.

As we rework our budgets, revisit our financial goals or reschedule our loans, we must do so based on empirical facts. Do not rush to making hasty decisions under pressure or out of fear. Take the time (within reason) you need to calmly review the pros and cons. But avoid analysis paralysis – which in itself, is being immobilized by fear and refusing to make any decision at all. Refuse to be pressurized by your creditor. Stand back and appraise your options. Ask for help from 3^rd parties if needed.

Some of us are using Personal Finance Management (PFM) Apps to manage our finances. These would be very useful at this time when we want to redo our budgets, reschedule our financial goals or rearrange our loan payment plans. Once we input our new income figures, the app would suggest ways of achieving these. This way, we are immediately presented with several options and can choose the best ones faster.

Some of us may need financial help and cash support. Please take advantage of the numerous platforms that are providing material and financial help. Everybody falls into rough patches at different times. Rough times are temporary. If we take the help being offered by the federal /state governments or NGOs, we would be able to keep our heads above the rough waters and escape quicker. Helping hands make burdens lighter. Please ask for and receive help. Stay home. Stay Safe. Happy Investing!

Global stock markets are being battered by the Coronavirus effect as we speak. Many stocks are trading are far below their market value – that is they are a bargain. Now is the time to consider new investments in the equities because, certainly the prices would rebound. The only issue is – no one can accurately predict when they would rebound. But as we have said on many occasions – individuals should invest in the stock market on medium to long term basis and leave stock trading/ gambling to the professionals.

The market has cycles. There is the “bull run” and “bear market”. The bull run is when the entire stock market and most of the stocks on it are increasing in price and value. The bear market is the opposite. Every bull run is followed by a bear market and every bear market is followed by a bull run. It is the length of each one that determines the overall performance of the stock market at the end of the year. We should always expect these cycles, they are the way in which the market corrects itself. Investment experts advise us to enter when the market is down and leave when the market is up. But the current bear market is not market induced. It is artificially created by the COVID 19 pandemic.

The four most basic considerations in choosing shares are investment objectives, risk appetite, investment tenure and ethical considerations. All these must be carefully considered before investing. Investment objectives, especially at this time, would center on capital appreciation and portfolio growth. Risk appetites define how well we can tolerate the fluctuations that accompany share prices. If we are very risk averse, it’s best to avoid the stock market all together and choose investments that assure us of principal and profit e.g. money market investments and government treasury bills. However, if we invest in during a Bear Market, we have a greater chance of capital appreciation in the medium term. Warren Buffet, the most successful and richest stock investor and third richest man in the world advises a medium to long term tenure for each investment. When looking at ethical considerations we look at the businesses of the companies we want to invest in. Some may choose not to invest in alcohol and tobacco manufacturers, others would not invest in companies that manufacture using child labor in developing countries. These four factors help us to ensure we stay true to our financial goals and plans.

In choosing stock during a Bear Market we need to look at the price history of the stock. If the stock usually traded between N20 – N25 but is now priced at N15 without any serious problems occurring in the company, it is obvious it is suffering from coronavirus effect and there is value to be obtained in the medium term if we buy the stock at that low price.  Always do your due diligence and speak to your stockbroker for more insight. Buying during bear markets may seem contrary to conventional wisdom, especially because no one can tell if the prices would drop further before they begin to climb up again. Hence the need for a medium to long term investment horizon. When the market is down, share prices are generally low, as is currently playing out in many global stock markets – many good stocks are underpriced. That is the time to buy, one would buy at a bargain. To leave when the market is up is to sell when stock prices are generally high. That way one would make a good return on the investment and fulfill the stock market motto – buy low, sell high. Also, we may choose to keep the stock in our portfolio indefinitely and enjoy good returns via hefty dividend payouts.

It is important to point out, that there is a big difference between damaged stocks and damaged companies. Damaged stocks are stocks that have low prices, but the underlying companies are doing very well. Damaged companies are stocks whose prices are low because the underlying companies are failing. In a bear market, buy damaged stocks and not damaged companies.

The stock market is a major vehicle for wealth creation and income generation for most investors. Some investors have lost money but many more have been enriched by it. Empower yourself with relevant information, work with the right partners and do your due diligence before, during and after you commit your finances to equities or any investment asset for that matter. Happy investing.

As important as savings and prudence are, wealth only comes by active creation

I am certainly one of those who believe that we cannot get financially independent just by saving. As important as savings and prudence are, wealth only comes by active creation. We only get rich by increasing our incomes. However, savings are the precursor to investments. We can only invest funds we have accrued through savings. Therefore, as you read today’s article, please bear in mind that savings are not the end in themselves, but they are the means to the end. How then can we plug increase our savings? Where are the leakages that are draining our investible funds and consequently the growth of our wealth?

Subscriptions – they are the 21st century’s fad. Many subscribed to packages on social media platforms, cable TV and telecoms services. Take social media for instance, do we really need the premium package just so that we can be the first to read what is happening in the life of so-called celebrities? Most of the “hot” news becomes common and freely available knowledge within a few hours. It may not be worth the extra cost. Another drain is the cable TV subscription. How many of the 250 channels in the premium package do you watch in one month? Do you really need the extra view access if family members are not watching TV at the same time? Do you need premium cable TV and Netflix subscriptions together? What could the N18,000 paid for monthly premium subscription do to your investible funds? In addition to these two types of subscriptions, we have the undergirding one – data package. We use internet data subscriptions to access our social media accounts and Netflix subscriptions. If we review the usage of our data, we may discover that we spend more data on browsing to find the materials to watch, than on actually watching any material. We must determine ways to reduce the amount of data we use, and consequently the amount of money paid to internet service providers. We should utilise data saving mechanisms and curb the amount of data available for use by different applications. We must also regularly change our MIFI/ WIFI passwords and use strong alphanumeric passwords.  Some people have discovered that their neighbours use their WIFI without permission, having hacked into their accounts because the passwords were easy to decipher and remain unchanged for months.

Entertainment – Saying no to entertainment expenses requires financial discipline but thank God that the lockdown has helped us unintentionally. Do we really want to go back to the days of buying aso-ebi every month? Buying and sewing, then women add the cost of gele tying and professional make-up. Assuming the aso-ebi is ankara, if we spend N15,000 on one occasion every month, that is N180,000 investible funds drained from our wealth every year. Even without calculating the potential incomes, that is a sizable amount of money lost. Better to give it to charity and improve the socioeconomic environment we live and work in. Eating out is another drain that we can plug. Make cooking a fun event for the whole family. When the social distancing rules are relaxed, invite friends to eat in your house instead of taking them to restaurants. Pack snacks, school lunches etc, from home. Home packed meals offer better quality and quantity than the mass-produced ones. Study the situation for a month; see if there are significant financial savings from home-packed meals and take a decision on plugging the leakage.

Unplanned spontaneous spending is a leakage we must learn to plug consistently. Avoid spending money on anything that you did not budget ahead, except of course medical emergencies and disaster recovery items/ services. Never give in to pressure to spend. Ask for time to think about the purchase. Walk away from all the physical stimuli that are bombarding your senses and attacking your willpower. Walk away! Help yourself by preparing a shopping list every time you visit the mall or market. Do not take all your ATM Cards with you. Leave your phone in the car, to avoid USSD transfers. Many times,after walking away from the situation that is pushing the unplanned buying an item, we realise and conclude that the purchase is unnecessary. If it is still necessary after 24 hours, plan its purchase in subsequent budgets. Delayed gratification is a virtue that everyone serious about financial independence must master. It would help you keep your investible funds intact.

Wealth grows through increasing incomes, while income is generated through investing savings. Let us accrue all the funds garnered from the leakages and invest them in high yielding assets. Happy investing.

With this GSI, banks will be able to take money from other accounts in any bank in Nigeria to pay any debt being owed by such a person.

By Ibukun Emiola
Ibadan, July 17, 2020 Some financial experts have lauded the Global Standing Instruction (GSI) policy of the Central Bank of Nigeria (CBN), saying it will reduce the non-performing loans already on the increase in Nigeria.
The experts expressed the views in separate interviews with the News Agency of Nigeria (NAN) on Friday in Ibadan.
Mrs Lolade Adesola, a Financial Consultant at L. A. Consult, Ibadan, described the GSI as a very welcomed policy by the apex bank because of borrowers with fraudulent intentions.
“We know of borrowers who have money in one place and deliberately refuse to pay, just because the law says if money is in one name, another name cannot be used for repayment.
“But with this GSI, they will be able to take money from other accounts in any bank in Nigeria to pay any debt being owed by such a person.
“This is applicable, as we have an increased number of people who take loans, put the money in other banks and are then running their business,” she said.
Adesola said that this was what many people used to do while she was in the banking sector.
“People will get loans in one bank and refuse to pay back, and instead of paying money into their accounts that are in debt, they will go and open accounts other banks and be running them very well.
“So we are glad that a policy like the GSI has been formulated to cater for this lapse in the banking sector,” she said.
Adesola noted that the family members’ accounts were included in the policy, because most people opened accounts in the name of their family members.
“Although the policy ought not to have included family members’ accounts, we have, however, seen cases where people use family members’ names to open accounts, but they are the ones who sign cheques.
“I have seen a person, who brought out a cheque in someone else’s name and signed it, and the signature was exactly the one we had on the mandate.
“So people do all sorts of things and I am glad that they are being prevented from continuing such practices.
“You will see the account name of a minor with as much as N10 million and you will know the money in the account does not really belong to such a minor.
“Such money can definitely be used for repayment under the GSI, if it can be reasonably proven,” Adesola said.
According to her, the policy will make people think again before getting loans and make banks more comfortable to lend money to genuine businesses.

Source

Work is changing; new skills are required for tomorrow’s work. Employers would only retain staff who demonstrate the skills needed in the digital age.

For many of us, our finances were negatively impacted by the recent lockdown. This has necessitated a comprehensive review of our personal finance management strategies to ensure they conform to effective money management principles.

For instance, Emergency Funds. Many have never seen the need to have cash and near-cash assets enough to meet up to six-months living expenses. The discipline to save has been difficult to develop. However, recent experience brings to the fore the vital importance of keeping an emergency fund.

Whilst many postulate that we would never have another global lockdown in our lifetime, there are various other adverse occurrences that would be easier to overcome if we had a “rainy day” fund. Emergency funds were advised long before the lockdown to enable us to manage financial stress caused by retrenchments, accidents, surgeries, deaths etc. Insurance can also help us cope better with some of these adversities. It is no longer a luxury nor is it reserved only for those with little faith.

The lockdown also emphasized the need for us to have multiple streams of income. Whilst we were all locked in and many self-employed were unable to earn a living, some people were pleasantly surprised with deposit alerts in their accounts, as dividends from the big banks were credited to them. There are testimonies of people who claim that those dividends were timely lifelines to their families’ survival. This underscores the need to diversify our sources of income.

Many small business owners feel the need to put every kobo they get back into their business’ growth. At face value, this seems incredibly wise. But the new realities of lockdown confirm the age-old adage; putting all our eggs in one basket is never wise. Salary earners too need to diversify their income streams and investment portfolio. Although you may not be able to do a second job, you can get your money to work for you through investments in both public and private equities. Investments in the stock exchange must also be sufficiently diversified, so that when one sector is stressed and unable to pay good returns, dividends from other sectors would it balance out.

The lockdown also highlighted the need to upgrade our skills. Remember, the income we earn is causally related to the work we do. Many were able to take free online courses to improve their ability to do their current jobs and even, in some instances, to change their lines of work. But, we must not wait for lockdowns to upgrade our skills. Whilst the stay-home provided ample time to undergo trainings, if we are serious and committed to new skills acquisition, we can always create the time for it even when fully occupied in a 9-to-5 job. We just need to reprioritize our activities and reschedule them.

Work is changing; new skills are required for tomorrow’s work. Employers would only retain staff who demonstrate the skills needed in the digital age. Let us be proactive and remain relevant in our industry, so that we can continue to earn sufficient income to meet our current lifestyle needs and still have something left over for retirement planning.

The lockdown and attendant threats to our personal wealth have also motivated us to change our priorities. No longer can we continue to indulge in excessive consumer spending and consumption. Prudence is no longer a dirty word or the concern of only the poor. Many now realize that buying the latest model of their cell phone when their current one still works efficiently and looks good, is no longer a matter of “life and death.”We have been compelled to reduce the amount of money we spend on social events; aso-ebi, tailors, makeup artists, gifts etc. With the forced online attendance of social events occasioned by the need for social distancing, the cultural outlook is changing. Of course, if and when social distancing is no longer advised, some may want to return to the old ways, but certainly there has been a shift in attitudes and we have “a new normal”.

During the lockdown, we moved our activities online. Financial, education, religious, and social activities were all impacted. CBN’s cashless policy was certainly advanced by this lockdown. Let us continue to ensure the safety of our financial transactions in cyberspace. Do not share your PIN, even with family (they can mistakenly share it with others). Change your PIN often or anytime you feel it has been exposed. Do not use public WI-FI for financial transactions, other people may see your activity. Destroy POS receipts. Prevent identity theft.

Let us all adapt to the new normal. Happy investing.

Time is money. Let us start rebuilding to make up for the recent losses.

IN the light of recent financial stresses many have faced or have been threatened by, there is a need to revisit our financial plans and align them with our current realities. Our emergency funds may have been drained, new spending priorities could have emerged, and the timelines for achieving financial goals may need to be extended. Like with our initial financial plans, every member of the family must be onboard to ensure that no one inadvertently sabotages the efforts, moreso if additional sacrifices are going to be required of them.

A financial plan enumerates our financial goals, either tied to the financial aspects of life events e.g. weddings, education and retirement or standalone goals of wealth creation. Each goal should have a monetary value and specific timeline attached to it. The plan then describes how these monetary values would be attained within the set timelines; typically, through savings from income, followed by the investment of those savings in assets that generate passive income and build our wealth. With the recent financial stress, those timelines may need to be changed, probably because we are no longer earning as much as before or simply because cannot afford to save as much due to changed priorities. Whatever, the reason, in order to achieve the goals we set out, we should amend the two major factors –amount saved/invested and timelines.

We start by appraising our financial situation and our spending budgets. A realistic budget carefully considers all our spending obligations and puts realistic figures on them. Popular wisdom recommends that before a budget is developed, we spend 1 month (1 salary cycle) reviewing what we are now spending on various items , this enables us to determine how much to reallocate to each category of expenses and which expenses we can successfully reduce or eliminate. Budgets should make allocations to food, housing, utilities, personal care & clothing, transport, dependents’ requirements, entertainment, taxes, insurance, rebuilding of emergency fund and savings (for investment). When we arrive at the amount of funds we have left for investments, we would see clearly how much extra time needs to be allocate to the achievement of various goals.

There may be a temptation to invest in higher yield assets to make up for lost time, but we must remember that the higher the yield, the higher the risk of losing the principal invested. Therefore, we must ensure firstly, that we are comfortable with the new levels of risk. No point having sleepless night because of money. Secondly, we should conduct comprehensive due diligence exercise on each investment – the asset, its managers, the income history etc. before we commit our hard-earned money to it. For the risk averse, it is better to keep their principal and earn a small yield than to lose the principal in the bid to earn hypothetically higher yield. However, we should look beyond the conventional money market and stock market for investments. Closely held equity, peer-to-peer funding, crowd funded projects and real estate should be carefully considered as parts of our new investment portfolios. Having these alternative investments in addition to the traditional ones would ensure that our portfolios generate optimal returns on investment whilst be adequately diversified. Diversification, we remember is a risk management strategy (do not put all your eggs in one basket).

Like we have discussed many times in this column, we can get free yet incredibly good help for our financial planning through the use of personal finance management (PFM) apps. Installed on our cell phones or other compatible devices, they help manage our finances by assisting in the creation of budgets and SMART goals, alerting when bills are due, giving investment advice, monitoring compliance with spending budgets and evaluating our progress towards achieving our financial goals. The budgeting function suggests different expense headings that you may want to budget for, and some apps recommend what percentage of your income should be spent on each expense head. The budgeting function works in tandem with the expense tracker, which as the name suggests tracks every expense made. Every month (or whatever period you choose) the app compares your budget with your expenses (using graphs and charts) and helps you to identify how disciplined you are in sticking to your budget.  The investment management feature provides limited financial advice; using artificial intelligence to analyze data and profile the app user. It helps create investment goals and monitors your progress in achieving the goals. The apps also help with portfolio diversification.

Time is money. Let us start rebuilding to make up for the recent losses. Happy investing.

If you are risk averse and looking for safe havens to put your assets at this time, the money market could be your good choice.

THE current macroeconomic situation, the wild fluctuations in the stock and commodity markets, threats of recession and the grim predictions of IMF/ World Bank may be necessitating a flight to safety – Money market (MM) instruments. These instruments are essential for proper investment portfolio diversification, but they are also the preferred investment choice in turbulent times. But what exactly is a money market instrument (or security)? How do they work? What makes them the preferred low risk investment option?

The wild price fluctuations and unpredictable profit scenarios mean that an investor in the stock market and other investments could receive little or no returns on their assets and even stand the risk of losing part of their principal. However, the risk of losing principal investment is close to zero in the money market. MM instruments have notoriously low returns on investment (because of the lower risks), but if capital preservation is important to you, they are the way to go.

The money market is where liquid financial instruments with relatively short tenures are traded. An MM instrument, sometimes called a bond, is actually a debt. The investor (bondholder) grants the bond issuer a short-term loan to enable the bond issuer meet operating expenses. In return the bondholder is paid an interest at an agreed interest rate (aka coupon rate) at agreed times, and at the maturity of the bond, the investor collects the original sum invested. Compare this to investment in company shares (equity), where the investor never gets the original sum invested back, because the money was used to buy her portion of the company; but she will receive dividends whenever the company makes profits.

These instruments can be easily converted to cash, so when the economy is more stable, you can move the funds to higher yielding investment vehicles. Returns and yields are predictable; hence the other name for MM instruments is Fixed Income instruments. They are issued by governments (national and sub-national), banks and companies. They can be secured or unsecured. Federal government bonds are generally classified as risk free because they are backed by the might of the country’s central bank. In Nigeria, they include the treasury bills (TBs), FGN savings bonds and FGN bonds. Interest earned from FGN instruments are tax exempt and therefore are not subject to the 10% withholding tax payable on other MM instruments. In addition, treasury bills pay the interest upfront; so, under the principle of time value of money, the interest received is actually higher in value than if it was received backend because the investor gets to use the money 90 days (depending on the tenure) earlier. The combination of upfront and tax-free interest makes TBs an excellent MM instrument.

State government bonds are also available. State governments issue them in order to generate bulk amounts of money to fund key infrastructure projects. The dwindling resources of state governments need not alarm investors as they are protected by the terms of the Bond; such that money for payments to bondholders are deducted from states monthly statutory allocations first, before the governors have access to the allocations. Sadly, with the current dire situation of state government accounts, this asset class may not be available for a long time, except maybe in the secondary market.

Corporate bodies also issue bonds. There are two main categories – commercial papers (CPs), which are unsecured bonds and bankers’ acceptances, which secured because they give the investor recourse to a bank in the event that the bond issuer defaults. Therefore, in buying CPs, the investor must ensure that only the best run companies are considered. Real estate developers also issue longer tenured bonds for the development of residential, commercial or infrastructure projects.

Fixed deposits are another form of MM investment. They are loans to banks for a specified number of days, which the banks in turn use to fund their operations, that is, lending to their customers. This is the reason banks frown are liquidating fixed deposits before maturity; they have relied on such deposits, lent out the money and in most cases, the borrower is not due to repay.

MM securities are regulated by the Securities and Exchange Commission (SEC). They are listed on the FMDQ Exchange (the MM equivalent of the Stock Market) for both initial offerings and secondary trading. To guide your due diligence, look out for the rating given the instrument by reputable rating agencies like Agusto and Co.

If you are risk averse and looking for safe havens to put your assets at this time, the money market could be your good choice. Happy investing.