Emergency Fund

Lately, i’ve been saving a huge sum for the purpose of emergency. I define an emergency fund as funds for sudden and unexpected expenses. This includes a sudden change of job role which may deny me some benefits I had earlier taken for granted, medical expenses which my current medical scheme may not cover and other miscellanous expenses that suddenly creep up out of nowhere.

I have this tidy sum in my savings account right now and I really had no idea about where to invest it for the short term until I thought about treasury bills. I have been toying with this idea for some time now due to the low interest rate available for savings account holders within the Nigerian banking industry. Besides, I have also been toying with the idea of taking a one year break from my career while I pursue other personal interests. So, I called up my friend at First Bank who was kind enough to tell me that the rate is 5.9%. This may not seem attractive to a lot of people, but on the other hand, remember i’m not looking for huge returns. I need an outlet where I can stash this fund till I really need it. Treasury bills offer a safe return and I can decide to use the income I receive from this investment towards my living expenses or in the interim roll it over till I’m really sure on what I intend to spend it on.

Furthermore, in the event of an emergency, I can pull out my funds but until then, Treasury Bills will be a safe outlet for my funds.

The 10% Saving Rule – Is it enough?

For sometime now, I’ve been visiting other personal finance websites to read about other people’s savings habits. Most personal finance books advocate the 10% savings rule. The rule states that if you set aside 10% of your monthly income, then you will have enough for retirement. So I ask myself – is this rule applicable for everyone? From my point of thinking, 10% may not be enough depending on how you intend to spend retirement. If your retirement plans are anything like mine, or you still intend to be actively involved in other pursuits, you may need to set aside more than 10% annually.

 

As we progress on our career path, our annual income changes depending on our individual performances on the job. So, assuming you started off the career ladder with N750,000 annually and currently earn N2mn – N3mn now, saving 10% which boils down to N200,000 annually seems like shortchanging ourselves because it’s all about the power of compound interest. Assuming retirement has been pegged at 65years, an individual aged 28 years, has 37years till retirement to kick start a consistent savings and investment plan.

 

If you start off with N200,000 annually for long term investment plans, assuming the rate of return is 13% annually and you’re consistent with this figure till retirement. At the end of your career life span, you’ve saved a total of N7.4mn. assuming the initial amount and subsequent amount saved posts a return of 13% annually; you’d end up with a total sum of N226mn.  This plan will happen if you do not find yourself out of a job for a few years or your spouse loses his/her job; children’s school fees; annual vacations or other emergencies come up to disrupt your savings plan. For me, saving more than 10% annually will take care of any financial emergencies that may occur in the future.

Democracy and Financial Freedom

In a weeks time from now, Nigeria will be celebrating its’47^th Independence celebration. Lately, I’ve been thinking about how democracy, rule of law and financial independence are directly linked. Most times I think we don’t know or take for granted how important democracy is.  At the meeting I attended last week, my manager spoke about her recent trip to South Africa. She had actually attended leadership training where she met a colleague from Zimbabwe. This lady heads the human resource unit of our sister organization in Zimbabwe.

 

They both got talking about the economic recession in Zimbabwe and my manager had asked her if the reports on CNN were true. She answered in the affirmative and even said the situation was much worse than what CNN portrayed. She spoke about her kids bathing in a bucket of water not with a bucket of water because water has become a luxury they can’t afford. One million Zimbabwe dollars cannot buy sugar, poultry, beef or flour in the market place. Citizens are hungry, there’s nobody to fill all the various job roles within the organization. She said “Robert Mugabe” daily kills all the cattle and poultry on a daily basis for the armed forces, provides international scholarships for their kids just to ensure he stays on forever as the country’s’ president.

 

Furthermore, during lunch she received a phone call from her kids in Zimbabwe, who had called to inform her that for the first time in several months, they had electricity and water. So they could afford to wash their clothes and take their baths. It was a harrowing picture she painted and it made me wonder what this woman was passing through on a daily basis in Zimbabwe. At the time of writing this article, about 3million Zimbabwe citizens have fled to South Africa as economic refugees.

So I look at our own situation in Nigeria and I understand how important it is to speak out against injustice, corruption in government, politicians not fulfilling their promises, and speakers of the house who use more than $2million dollars to renovate official residences without thinking about the common man out there on the street who cannot afford three square meals daily. If we don’t have economic stability, I won’t be blogging about my journey towards financial freedom.

Please join me wherever you may be to offer a five-minute prayer for our nation and the African continent. For as long as we allow nonentities such as Robert Mugabe and other half baked government officials all across the continent to rule the common man, Africa will continue to grapple in the dark. I’ve chosen to speak out. God Bless Nigeria.

 

How to Buy and Sell Shares

You can purchase shares in some mutual funds by contacting the fund directly. Other mutual fund shares are sold mainly through brokers, banks, financial planners, or insurance agents. All mutual funds will redeem (buy back) your shares on any business day and must send you the payment within seven days.

The easiest way to determine the value of your shares is to call the fund’s number or visit its website. The financial pages of major newspapers sometimes print the NAVs for various mutual funds. When you buy shares, you pay the current NAV per share plus any fee the fund assesses at the time of purchase, such as a purchase sales load or other type of purchase fee. When you sell your shares, the fund will pay you the NAV minus any fee the fund assesses at the time of redemption, such as a deferred (or back-end) sales load or redemption fee. A fund’s NAV goes up or down daily as its holdings change in value.

Exchanging Shares A “family of funds” is a group of mutual funds that share administrative and distribution systems. Each fund in a family may have different investment objectives and follow different strategies. Some funds offer exchange privileges within a family of funds, allowing shareholders to transfer their holdings from one fund to another as their investment goals or tolerance for risk change. While some funds impose fees for exchanges, most funds typically do not. To learn more about a fund’s exchange policies, call the fund’s number, visit its website, or read the “shareholder information” section of the prospectus. Bear in mind that exchanges have tax consequences. Even if the fund doesn’t charge you for the transfer, you’ll be liable for any capital gain on the sale of your old shares — or, depending on the circumstances, eligible to take a capital loss. We’ll discuss taxes in further detail below.

How Funds Can Earn Money for You

You can earn money from your investment in three ways:

1. Dividend Payments — A fund may earn income in the form of dividends and interest on the securities in its portfolio. The fund then pays its shareholders nearly all of the income (minus disclosed expenses) it has earned in the form of dividends.
   
2. Capital Gains Distributions — The price of the securities a fund owns may increase. When a fund sells a security that has increased in price, the fund has a capital gain. At the end of the year, most funds distribute these capital gains (minus any capital losses) to investors.
   
3. Increased NAV — If the market value of a fund’s portfolio increases after deduction of expenses and liabilities, then the value (NAV) of the fund and its shares increases. The higher NAV reflects the higher value of your investment.

With respect to dividend payments and capital gains distributions, funds usually will give you a choice: the fund can send you a check or other form of payment, or you can have your dividends or distributions reinvested in the fund to buy more shares (often without paying an additional sales load).

Factors to Consider

Thinking about your long-term investment strategies and tolerance for risk can help you decide what type of fund is best suited for you. But you should also consider the effect that fees and taxes will have on your returns over time.

Degrees of Risk

All funds carry some level of risk. You may lose some or all of the money you invest — your principal — because the securities held by a fund go up and down in value. Dividend or interest payments may also fluctuate as market conditions change.

Before you invest, be sure to read a fund’s prospectus and shareholder reports to learn about its investment strategy and the potential risks. Funds with higher rates of return may take risks that are beyond your comfort level and are inconsistent with your financial goals.

A Word About Derivatives Derivatives are financial instruments whose performance is derived, at least in part, from the performance of an underlying asset, security, or index. Even small market movements can dramatically affect their value, sometimes in unpredictable ways. There are many types of derivatives with many different uses. A fund’s prospectus will disclose whether and how it may use derivatives. You may also want to call a fund and ask how it uses these instruments.

Fees and Expenses

As with any business, running a mutual fund involves costs — including shareholder transaction costs, investment advisory fees, and marketing and distribution expenses. Funds pass along these costs to investors by imposing fees and expenses. It is important that you understand these charges because they lower your returns.

Some funds impose “shareholder fees” directly on investors whenever they buy or sell shares. In addition, every fund has regular, recurring, fund-wide “operating expenses.” Funds typically pay their operating expenses out of fund assets — which means that investors indirectly pay these costs.

SEC rules require funds to disclose both shareholder fees and operating expenses in a “fee table” near the front of a fund’s prospectus. The lists below will help you decode the fee table and understand the various fees a fund may impose:

Shareholder Fees

• Sales Charge (Load) on Purchases — the amount you pay when you buy shares in a mutual fund. Also known as a “front-end load,” this fee typically goes to the brokers that sell the fund’s shares. Front-end loads reduce the amount of your investment. For example, let’s say you have N100,000 and want to invest it in a mutual fund with a 5% front-end load. The N5,000 sales load you must pay comes off the top, and the remaining N95,000 will be invested in the fund. According to the rules, a front-end load cannot be higher than 8.5% of your investment.
  
• Purchase Fee — another type of fee that some funds charge their shareholders when they buy shares. Unlike a front-end sales load, a purchase fee is paid to the fund (not to a broker) and is typically imposed to defray some of the fund’s costs associated with the purchase.
  
• Deferred Sales Charge (Load) — a fee you pay when you sell your shares. Also known as a “back-end load,” this fee typically goes to the brokers that sell the fund’s shares. The most common type of back-end sales load is the “contingent deferred sales load” (also known as a “CDSC” or “CDSL”). The amount of this type of load will depend on how long the investor holds his or her shares and typically decreases to zero if the investor holds his or her shares long enough.
  
• Redemption Fee — another type of fee that some funds charge their shareholders when they sell or redeem shares. Unlike a deferred sales load, a redemption fee is paid to the fund (not to a broker) and is typically used to defray fund costs associated with a shareholder’s redemption.
  
• Exchange Fee — a fee that some funds impose on shareholders if they exchange (transfer) to another fund within the same fund group or “family of funds.”
  
• Account fee — a fee that some funds separately impose on investors in connection with the maintenance of their accounts. For example, some funds impose an account maintenance fee on accounts whose value is less than a certain dollar amount.

Annual Fund Operating Expenses

• Management Fees — fees that are paid out of fund assets to the fund’s investment adviser for investment portfolio management, any other management fees payable to the fund’s investment adviser or its affiliates, and administrative fees payable to the investment adviser that are not included in the “Other Expenses” category (discussed below).
  
• Distribution [and/or Service] Fees (“12b-1″ Fees) — fees paid by the fund out of fund assets to cover the costs of marketing and selling fund shares and sometimes to cover the costs of providing shareholder services. “Distribution fees” include fees to compensate brokers and others who sell fund shares and to pay for advertising, the printing and mailing of prospectuses to new investors, and the printing and mailing of sales literature. “Shareholder Service Fees” are fees paid to persons to respond to investor inquiries and provide investors with information about their investments.
  
• Other Expenses — expenses not included under “Management Fees” or “Distribution or Service (12b-1) Fees,” such as any shareholder service expenses that are not already included in the 12b-1 fees, custodial expenses, legal and accounting expenses, transfer agent expenses, and other administrative expenses.
  
• Total Annual Fund Operating Expenses (“Expense Ratio”) — the line of the fee table that represents the total of all of a fund’s annual fund operating expenses, expressed as a percentage of the fund’s average net assets. Looking at the expense ratio can help you make comparisons among funds.

A Word About “No-Load” Funds Some funds call themselves “no-load.” As the name implies, this means that the fund does not charge any type of sales load. But, as discussed above, not every type of shareholder fee is a “sales load.” A no-load fund may charge fees that are not sales loads, such as purchase fees, redemption fees, exchange fees, and account fees. No-load funds will also have operating expenses.

Be sure to review carefully the fee tables of any funds you’re considering, including no-load funds. Even small differences in fees can translate into large differences in returns over time. For example, if you invested N10,000 in a fund that produced a 10% annual return before expenses and had annual operating expenses of 1.5%, then after 20 years you would have roughly N49,725. But if the fund had expenses of only 0.5%, then you would end up with N60,858 — an 18% difference.

Start Saving for Retirement at 16 to Enjoy Old Age

A regular reader (Remi Emeka Njoku) on this blog sent in this article. I have decided to publish it to encourage feedbacks on what you really think is feasible for your kids within the Nigerian context.

Saving for retirement, a recent survey has revealed, is not on the minds of most Nigerian adults. This perhaps explains why among other reasons most Nigerians experience miserable old age, and often pose great burden and liabilities to their children and other caring relations. Pension management experts are of the view that with the recent introduction of the contributory pension scheme, the problem of miserable retirement life may soon be a thing of the past. Then, that is for people in the formal sector which is the only sector covered by the contributory pension scheme. For people in the informal sector, the situation may remain the same for a long time. This situation is even worsened by the level of job insecurity, high level of unemployment, and drastically low level income among many the working group in both the formal and informal sector in the country.

Pension experts thus, suggest that one way of accumulating enough savings for retirement is by starting savings at teen age. Sixteen is the prescribed age.
But, saving for retirement most likely is not on the minds of most 16-year olds, more especially in a country like Nigeria where most teenagers earn nothing.
One way of achieving this is by taking advantage of some of the special financial products for children being introduced by banks. This could be funded by a parent or grandparent, as long as the parent or grand parent has earned income that is at least as much as the contribution.
In its simplest form, growing money has three main ingredients: money, growth rate or rate of return, and time.
When you are 16, you have time on your side.

Take for instance, if you decide to take the Intercontinental Bank Happy Saver Millionaire Target account, if you save N2,000 per annum, in 28 years you will have saved N1,053,779.97. If you decide to save N5,000 per annum, you will accumulate N1,004,933.95 in 14 years. If you move the annual savings a bit higher to N10,000 it will amount to N1,086,182.55 in eight years. At N15,000 and N20,000 per annum it will amount to N1,184,645.03 in six years and N1,021,170.73 in four years, respectively.
Take a look at this calculator that I have created and you’ll see what I mean:

The Power of Starting Young

Annual
Amount Expected Inflation Account
Age Saved Balance ROR Rate Value
16 252,000 252,000

252,000

252,000 504,000

521,640

252,000 769,104

810,180

252,00 1,062,180

1,118,880
After 4 years, you quit contributing
and let the account grow…

Real
Account
Age Value
29 2,200,968
30 2,355,066
35 3,303,090
40 4,632,768
45 6,497,694
50 9,113,328
55 12,781,818
60 17,927,154
65 25,143,804

This calculator assumes that you invest N252,000 per year in your early retirement scheme for four years starting at age 16. So, by the time you are twenty, you can stop contributing. The second part of the calculator shows you how much that nest egg could be worth at different points in your life.

Keep in mind that these amounts are adjusted for inflation. So, although the amounts may not seem that big, they have been adjusted for inflation. I made it such that you can change the contribution amounts and the expected rate of return and the inflation rate. Even better, withdrawals from this account at retirement will be tax-free if you choose a good institution.
Pretty cool, eh? It is truly amazing the how such a relatively small amount of money can grow to a significant sum of money given enough years. If you are a 16-year old, you might want to get started on this right away. If you are a parent or grandparent of a 16-year old, have them read this post and consider helping them get started by either giving them the contribution amount or matching whatever they are able to save. It could be the best gift you could give them.
Try this calculation for a lifetime, and you will be amazed at how much you can save over a lifetime.

Please do not be deceived. This is a great idea in theory, but how many kids will be able to keep their hands off this money until retirement? There is no penalty assessed for yanking money out of a retirement savings scheme for education expenses or a first home. Few children these days have any concept of delayed gratification. They want the nicest cars, homes, toys, etc. and they want them now. My guess is that a majority of retirement savings schemes started by parents for their teenage children won’t last ten years before the money is withdrawn for an immediate want.
Another startling revelation by the BusibessDay survey is that women tend to lag behind men when it comes to retirement planning. Surveys show they start saving too late, which means they have to work longer.

Financial advisors say too many women make the mistake of not thinking ahead. “Women, we’re born with this imbedded thing that says we should not worry about it because we are going to get married and the husband will take care of it. That is not the case. We are not that type of woman anymore,” financial advisor Anna Ibrahim said.
In addition to starting late, there are other pitfalls for women. Experts say that often times women stop saving for retirement and switch their money to a education or house keeping fund when they have children, something they do not recommend.
Financial advisors also suggest women buy homes instead of things like expensive cars.
That’s what Oluremi Adekoya did 14 years ago after her divorce, and it’s going to pay off.
“Because my house in Aboru, in the Ikpaja area of Lagos has quadrupled in value, that’s my retirement money essentially,” Adekoja said.

Experts also recommend looking to buy disability insurance and long term insurance sooner, rather than later. Ibrahim said buy it when you’re 40.
“Lock in now with a lower rate. When you are in your 50s and your friends are all running around looking for good care, you are covered. You already have it,” she said.
She says the bottom line when planning for retirement is look to the future.
“Stop being emotional. Do not worry about yesterday. Let us start thinking about tomorrow and start saving today,” she said.
What’s the right age to begin planning for retirement? Are you too young or too old to start? Regardless of your age, the answer is a resounding “No”.

Nobody is too young to start saving for retirement. As soon as you are making money, you should be saving money! Still in school and only working part time? No problem. Sock away a few Naira from each paycheck. The power of compounding is magnified the earlier you start saving. Consider this. If you save just N1260 per month starting at age 16 until age 65, you’ll accumulate over N10,332,000 at 6.5% interest. Waiting until you’re 26 years old would require N4,914 per month to reach N10,332,000. Assuming you increase your monthly savings as your pay increases, you can build a substantial retirement nest egg. The longer you wait, the higher the penalty.

One more important issue to note is that nobody is too old, either. As long as you’re making money, you should still be saving money! Take for instance, if the average life expectancy in Nigeria is 75.5 years, you might live longer. In fact, mathematically half of the population will live longer than the average! So if you are 55 years old and still working, you still have 20 + years to enjoy life. It’s likely you won’t work all those years, so save as much as you can afford to now. Saving N12,600 per month starting at age 55 would give you another N2,142,000 for retirement. And remember, your savings will continue to grow after you stop working, as long as you only withdraw what you need for immediate expenses.

 

Aspiring Entrepreneurial Program

Sometime ago, I wrote an article on the “Entrepreneurial Employee” and the resources available to individuals who are desirous in setting up their own “Small Medium Enterprises” often referred to as SMEs. One of the foremost non-governmental organizations set up to cater for the needs of today’s entrepreneur, is Fate Foundation. Recently, I’ve been looking through the search list of words that people used in locating my blog and the word “Entrepreneur” has crept up a lot.

Mr. Fola Adeola (founder of GTBank Plc) established Fate Foundation for individuals who are desirous of setting up their own businesses, irrespective of whether you’re a recent graduate or already have years of working experience, your ideas are welcome at this organization. I was opportune to attend this program some few years back and I must say that I learnt a lot of things, which I still apply within my professional and personal life.

I recommend this program for the recent graduate or employee thinking of setting up a small business by the side. If you’re also planning for early retirement or some few years from retirement, you may consider giving this program a trial. This program is open to individuals aged 21 – 50 years. You’ll have access to a vast library comprising several business books and materials relating to any sector you may be interested in. you’ll also have access to a mentoring program; taught the nitty gritty in writing a business plan; business presentation skills; business writing skills; relevant case studies that are necessary for the survival of your intended business and also have the opportunity to be taught by facilitators from Harvard or Yale.

I must state here that this program runs for six months and usually holds twice a week if I remember correctly. The fee for this program is N50, 000 that can be paid in four installments. Application form is sold for N100, while a quantitative test will be conducted for selected individuals. If you pass this test, you’ll be invited for an interview to which you’ll be selling your business ideas to the panel. I must remind you that the class can only accommodate 50 students; so the earlier you start, the better. Sessions are held twice a year (January & September).

25 Rules to grow Rich by

When I started reading personal finance blogs, one of the first blogs that I stumbled upon was the simple dollar by Trent Hamm. I was actually trying to pursue the issue of investing in foreign mutual funds when I stumbled upon his blog.

One of my favorite article on his blog is 25 Rules to grow rich by. I would advise you read this article and relate it to our financial environment within Nigeria.

Manage Your Career

Early this year, I attended a focus group session within the organization I work for. We had a resource person from overseas who was conducting this session. One memorable thing I took away from this group session was this quote “Your first responsibility as an employee within an organization is to manage your career and not manage the company”. Why did I remember this quote all of a sudden?

I have a training to attend next week which is part of my personal developmental goals for my career this year. So, I walk up to my line manager all bright and cheery to remind him about this training, only to have him tell me that he and his line manager had discussed about this training and had decided to postpone this training till next year. To say, I was livid was an understatement. I mean, how can people be this selfish with other direct report’s career development plans.

So, I began to take note of all the various training programs this same manager had attended this year and it was more than twelve – all sponsored by the company. All the trainings I’ve attended this year have been paid for out of my own pocket. I have only one company sponsored training scheduled for this year and yet, I’m not being allowed to attend. Did I tell you why I can’t attend this training program? It’s because, this particular boss is worried about meeting year end volume targets, that she had to schedule a regional meeting for next week Monday, to ask the team to brainstorm on strategies to achieve this year end target. So, I ask myself where does the company draw the line in terms of line mangers who take the credit for all the good job being done by their direct reports and also being a good people manger.

This afternoon, I’ll be meeting with both of them to press home my reasons and the benefits of attending this particular training. When organizations begin to undermine employees personal development for the company’s bottom line, the employee feels demoralized, disenfranchised and begins to consider the greener grass on the other side of the fence. I’ll keep you posted on whether I attended this training or not.

How Mutual Funds Work

A mutual fund is a company that pools money from many investors and invests the money in stocks, bonds, short-term money-market instruments, other securities or assets, or some combination of these investments. The combined holdings the mutual fund owns are known as its portfolio. Each share represents an investor’s proportionate ownership of the fund’s holdings and the income those holdings generate.

Some of the traditional, distinguishing characteristics of mutual funds include the following:

	Investors purchase mutual fund shares from the fund itself (or through a broker for the fund) instead of from other investors on a secondary market, such as the Nigerian Stock Exchange.
	The price that investors pay for mutual fund shares is the funds per share net asset value (NAV) plus any shareholder fees that the fund imposes at the time of purchase (such as sales loads).
	Mutual fund shares are “redeemable,” meaning investors can sell their shares back to the fund (or to a broker acting for the fund).
	Mutual funds generally create and sell new shares to accommodate new investors. In other words, they sell their shares on a continuous basis, although some funds stop selling when, for example, they become too large.
	The investment portfolios of mutual funds typically are managed by separate entities known as “investment advisers” that are registered with the SEC.

When it comes to investing in mutual funds, investors have literally thousands of choices. Before you invest in any given fund, decide whether the investment strategy and risks of the fund are a good fit for you. The first step to successful investing is figuring out your financial goals and risk tolerance — either on your own or with the help of a financial professional. Once you know what you’re saving for, when you’ll need the money, and how much risk you can tolerate, you can more easily narrow your choices.

Most mutual funds fall into one of three main categories — money market funds, bond funds (also called “fixed income” funds), and stock funds (also called “equity” funds). Each type has different features and different risks and rewards. Generally, the higher the potential return, the higher the risk of loss.

Money Market Funds

Money market funds have relatively low risks, compared to other mutual funds (and most other investments). By law, they can invest in only certain high-quality, short-term investments issued by the Nigerian government, private corporations, and state and local governments. Money market funds try to keep their net asset value (NAV) — which represents the value of one share in a fund — at a stable N1.00 per share. But the NAV may fall below N1.00 if the fund’s investments perform poorly. Investor losses have been rare, but they are possible.

Money market funds pay dividends that generally reflect short-term interest rates, and historically the returns for money market funds have been lower than for either bond or stock funds. That’s why “inflation risk” — the risk that inflation will outpace and erode investment returns over time — can be a potential concern for investors in money market funds.

Bond Funds

Bond funds generally have higher risks than money market funds, largely because they typically pursue strategies aimed at producing higher yields. Unlike money market funds, the SEC’s rules do not restrict bond funds to high-quality or short-term investments. Because there are many different types of bonds, bond funds can vary dramatically in their risks and rewards. Some of the risks associated with bond funds include:

Credit Risk — the possibility those companies or other issuers whose bonds are owned by the fund may fail to pay their debts (including the debt owed to holders of their bonds). Credit risk is less of a factor for bond funds that invest in insured bonds or Nigerian Treasury bonds. By contrast, those that invest in the bonds of companies with poor credit ratings generally will be subject to higher risk.

Interest Rate Risk — the risk that the market value of the bonds will go down when interest rates go up. Because of this, you can lose money in any bond fund, including those that invest only in insured bonds or Treasury bonds. Funds that invest in longer-term bonds tend to have higher interest rate risk.

Prepayment Risk — the chance that a bond will be paid off early. For example, if interest rates fall, a bond issuer may decide to pay off (or “retire”) its debt and issue new bonds that pay a lower rate. When this happens, the fund may not be able to reinvest the proceeds in an investment with as high a return or yield.

Stock Funds

Although a stock fund’s value can rise and fall quickly (and dramatically) over the short term, historically stocks have performed better over the long term than other types of investments — including corporate bonds, government bonds, and treasury securities.

Overall “market risk” poses the greatest potential danger for investors in stocks funds. Stock prices can fluctuate for a broad range of reasons — such as the overall strength of the economy or demand for particular products or services.

Not all stock funds are the same. For example:

· Growth funds focus on stocks that may not pay a regular dividend but have the potential for large capital gains.

· Income funds invest in stocks that pay regular dividends.

· Sector funds may specialize in a particular industry segment, such as technology or consumer products stocks.

Investing in Mutual Funds

Part of my goals for the month of September is to save at least half a million naira towards recent investment towards mutual funds. However, recent events have overtaken this goal. I recently invested a tidy sum in a private placement stock market ace analyst “Abayomi Obabolujo”recommended while I’m also purchasing a bit of Dangote Flour. What this means is that I may not be able to invest half a million naira. I may end up investing with N350,000.

I have been thinking about investing in mutual funds recently to diversify my portfolio and also look at the possibility of investing in the money market to ensure a steady stream of income in the long run. So when IBTC recently came to the money market with “the Guaranteed Fund” I knew it was time to commence an investment goal toward the fund. If you’ve been considering investing in mutual funds, these are some of the things you should know.

Some of my goals for investing in mutual funds are retirement and real estate investment for the future. Mutual funds can offer the advantages of diversification and professional management. But, as with other investment choices, investing in mutual funds involves risk. And fees and taxes will diminish a fund’s returns. It pays to understand both the upsides and the downsides of mutual fund investing and how to choose products that match your goals and tolerance for risk.

Key Points to Remember

• Mutual funds are not guaranteed or insured by the CBN, NDIC or any other government agency — even if you buy through a bank and the fund carries the bank’s name. You can lose money investing in mutual funds.
  
• Past performance is not a reliable indicator of future performance. So don’t be dazzled by last year’s high returns. But past performance can help you assess a fund’s volatility over time.
  
• All mutual funds have costs that lower your investment returns. Shop around, and use an average Naira margin to compare many of the costs of owning different funds before you buy.