Enjoyable lovemaking does not come easily to everyone. You see, some do not know how to do it and do not realize it, so they fumble around and create an awful experience. Some think they know, and so charge in and satisfy themselves while leaving their partner unsatisfied. Others are too proud to admit they don’t know, so they subject themselves and their partners to misery. Still, some others who don’t know are willing to admit it. The fact is that knowing how to please and satisfy your partner will make for a happier and more peaceful marriage (lovemaking is more than physical, so we’re not just talking about the bedroom!)
Thankfully, it is an art form that can be learnt. Those willing to learn are the ones more likely to go on and create wonderful experiences for them and their partners.
But what does this have to do with investment, you ask? Well, picking viable stocks or assembling a solid portfolio doesn’t come easily to everyone either. But, just like lovemaking, it’s a skill that can be learnt. Because being able to financially provide for and protect your family for the short and long term will make for a peaceful and content home. So, if you belong to the camp of those who don’t know but want to learn, then please, read on.
To understand how to pick assets that are guaranteed to perform, you need to have at least a working understanding of the different kinds of assets out there, so you can decide which one would be suitable for you, based on your risk profile. When you start investing, you will be building a portfolio. This is a collection of different assets or instruments combined in specific numbers (called weightings) to help you achieve the best returns possible on your money.
This is a good place to explain what assets and liabilities are. Think of them like the opposite sex- assets are those people (man/woman) that take care of you and help build you or your bank balance up. Liabilities, on the other hand, are those jokers who not only give you headache and wahala, but also drain your bank balance. So assets are simply different types of investments that help your money make more money. Most people know of stocks and bonds, but these are not the only types of assets out there. Assets can be grouped into two types: growth assets and financial assets.
Growth assets earn money from dividends or profits and increase in value. Because these types of assets can grow in value it means they can also fall. Types of growth assets are shares, property, commercial property, infrastructure, private equity, hedge funds and commodities.
Financial assets earn money mainly from interest. They include assets such as fixed tip, treasury bills, cash, and opportunities. These types of assets offer low risk; for instance, fixed tip and treasury bills (more commonly called T-bills) have a pre-determined interest rate, depending on the length of time you choose to hold your money down for. So if you purchase T-bills for a maturation date of say, 6 months, you can generally predict how much your return will be. But (there’s always a ‘but’, isn’t there?) because they are low risk, it also means that returns on them are likely to be lower in the long term.
If you discover that you have a very low risk appetite, and don’t relish putting your money at risk, then this may be an option for you. The good thing is that, whether high or low, your money is making money (the value would simply be lower.)
To find out more about the different assets and asset classes out there, call our KIIS lines and chat with one of our KIISAs to get more info. Remember, knowledge really is power.
Next: Building Your Portfolio
Now that you have a working idea of what assets are and the different kinds out there, it’s time to decide how you’re going to acquire them to start building your portfolio. In constructing that portfolio, you must consider the following-
- Type of asset and in what quantity/ratio: imagine that you are in the process of getting a new wardrobe. It would have things like clothes, shoes, underwear, jewelry, etc. In putting the wardrobe together, however, would it have more shoes than jewelry (shoe addicts, where you at?), or more perfumes than underwear? It all depends on what you like, right? Well, the same general principle applies when building your portfolio.
In financial jargon, this is called asset allocation. You may decide to invest in stocks and bonds, or in real estate and infrastructure. This is where your risk profile helps you determine what kind of asset to acquire (hence the importance of knowing what it is.) Remember that if you can’t bear to lose even one kobo of money, then you might likely look at assets that are stable and less likely to lose value in the long term but would also give you low returns in exchange.
- Determine the proportion of your assets: do you want to invest 60% of your budget in real estate, 10% in treasury bills and the rest in bonds? In order to do this, you need to consider what you’re investing for (recall your financial goals?), how long you want to hold those investments for, and how quickly you can liquidate them, should you need to. This is very important, so you can get the maximum benefit from a combination of investments that suit you.
- How much risk you are prepared to undertake: This brings us back to risk profiling. Some people have a big appetite for life and seem to embody the maxim- go big or go home. When it comes to investing, they can stomach a large amount of risk and so don’t mind assets whose value moves with the market. As a rule of thumb, the larger the risk, the larger the reward, though this isn’t always the case. On the other hand, some approach life as if it were an exam they haven’t prepared for. If investing, they’ll usually stick to relatively stable assets – they market fluctuations generally don’t affect them- and so their initial investment stays reasonably safe. This type is not prepared to take chances with their investments.
Generally, we advise that, depending on your age and risk profile, and most especially the length of time before you may need the money, you should consider some higher risk investments and then change them to more stable assets the closer you get to when you need the money.
Just as you won’t buy your entire wardrobe at once (for most of us, anyway!), you can gradually build your portfolio up to where you want it to be. Start small and add as you go along. And just as it is important to review your wardrobe (probably once in a year), where you throw out the old, and make room for new stuff, you should also review or rebalance your portfolio often to make sure it is giving you the best returns possible.
To start your portfolio off on the right foot, we advise that you and your spouse sit with a financial consultant/planner and design a plan that is suitable for both of you, taking into consideration the fact that you may have different risk profiles. While it is possible to pick assets to invest in yourself, we recommend that you consult a knowledgeable yet accessible planner who would sit with you and walk you through what you need to know and do.
Our KIISAs are eagerly waiting to help you out.
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