Introduction
Introduction
We all want our money to work for us; whether our money is in cash or cows or in any commodity that is easily tradable or not. Investors always have the same question or should have, “how much can I earn from that investment”?
Investments are mostly managed by investment managers registered with NAMFISA. Investment managers set up an investor’s portfolio in such a way as to meet the investor’s investment objective.
A portfolio normally consists of different classes of assets.
What they are (investment products)
Investment products are those products that an investor would purchase with the expectation to earn a return.
A wide variety of investment products exist, including, but not limited to bonds, equities , money market instruments such as treasury bills, negotiable certifi-cates of deposit (“NCDs”), Bankers’ Acceptances (“BAs”) and investments in companies not listed on a stock exchange.
Understanding Your Investment Objectives
Before investing, one should be clear as to why you are investing and what your expectations are.
Capital Preservation
The aim is to invest with the intention of not losing the original capital, i.e., preserving the sum of money that you have invested. Assets that are generally less risky with lower returns are common investment types that investors choose when they want to preserve capital.
Investors approaching retirement age tend to prefer this investment choice because they have less time to recover from unpleasant market movements
Capital Growth
The intention is to invest in assets (investment products) that would grow your capital and increase the market value of your original investment. Investors seeking to grow their capital tend to invest in products that offer higher returns.
Because of the high returns sought, the risk taken on is generally higher as well.
Income
This investment objective aims to provide the investor with a regular source of income.
Place money in cash investments
Invest in bonds with higher interest payouts
Buy shares that pay out steady dividends
Liquidity
Investors who prioritize liquidity aim to convert their investments into cash quickly.
Important considerations:
- Check whether there is an active market with willing buyers
- Properties are not easily turned into cash
- Unlisted investments or private company shares can be difficult to liquidate
"It’s not whether you’re right or wrong that’s important, but how much money you make when you’re right." — George Soros
Before investing, ask yourself: Why am I investing, and what do I want to achieve?
Other Considerations
An investor should also take into consideration:
Time Horizon
One should invest with a time horizon in mind. Time horizon refers to the number of years needed to achieve one’s financial objectives.
For example, if you are 40 and investing for retirement, your time horizon is 20 years.
Your time horizon is important because it influences the type of assets you should invest in.
risk
Risk is not just about losing the capital invested — it also includes the uncertainty of receiving your expected return.
If you are 20 years old and investing for retirement, you can afford to invest in riskier assets because you have time to recover from potential losses.
However, if you do not have the time to recover from losses, you should avoid risky investments.
“It’s not whether you’re right or wrong that’s important, but how much money you make when you’re right.”
– George Soros
Contribution by: NAMFISA Capital Markets Department
Contribution by: NAMFISA Capital Markets Department
Precautions
Always avoid investments that offer high returns over a short period. (In most cases, if it sounds too good to be true, it probably is.)
Remember: High return = High risk.
Avoid being sweet-talked into investments you don’t understand.
Ask the hard questions. If you’re in doubt, don’t rush into a decision.
If you are unsure about a financial institution, contact NAMFISA.