Ramaddan Kareem

This is wishing my muslim sisters and brothers “Ramaddan Kareem”.

Investing in turbulent times

Hey, don’t go thinking I know all the answers cos I don’t. I am actually trying to discover what everyone is investing in amidst the global financial crisis. I spoke with a friend of mine yesterday and she suggested real estate. My grouse with buying land in Nigeria is the issue of  “Omo o nile” and attendant dubious charges. I would rather buy a detached three bedroom bungalow, within the range of N5mn – N6mn (which is dependent on whether I can access mortgage facilties), located in Lagos. Since I don’t have such huge funds right now, I have to think of something else.

For the past one month, I have been trying to scout for other alternative investment options (long-term), and someone had suggested ARM Investment. Please note that I did not include the link to the website. I’d rather not cos from my own point of view, either they are yet to engage the services of a social media strategist, or someone is simply not doing their job. I filled in the forms a month ago and I am yet to be contacted by a Wealth Advisor. What is the essence of setting up a website if there’s no one capable of attending to visitor’s enquiries. I also tried calling the numbers stated on the websites and unfortunately, none seems to be working.

My question today is: If you have some funds sitting idle in your savings account, where would you invest it?

Follow up To Retirement

I rarely visit the banking halls nowadays. Most of my banking transactions are conducted via the Internet and through the ATM machines at my local branch. I have not been to the banking hall for more than six months. If its’ imperative that I must go, it’s either I’m depositing money or probably making one or two enquiries. This has made life easier for me and also for a lot of Nigerians who conduct their banking transactions online. This has also led to multiple passwords and pin codes for the various cards that I carry in my wallet.

 After posting my article on retirement, I thought of what happens when a loved one passes on and his/her relatives do not have access to the passwords and pin codes to the bank accounts; what happens in such a situation? So, I ask myself if we’re creating more technological mess for our heirs when we die. I worked briefly in the banking industry and observed that 80% of the dormant accounts were a result of heirs or family members who are not aware of the various accounts the deceased had before his/her untimely death. Getting access to your financial accounts is imperative for your family members if you die, become incapacitated or you’re involved in a ghastly road accident that leaves you and your spouse either dead or paralyzed. Imagine what happens in the event of such a crisis where you find family members running helter skelter to raise funds and thereby incurring a huge amount of debt. For most families in Nigeria, the world virtually comes to a standstill when the breadwinner dies. Imagine what could happen; school fees will be left unpaid, neglected investment accounts could suffer losses, burial expenses will be incurred, financial accounts may never be claimed and the list is endless.Here are some of the things you can do to avert such a crisis:

·        Appoint an executor for your financial estate: this could be your brother, sister, parents or even your eldest child so long as he/she is 21years (this is the legal age in Nigeria). Your executor should have your current login password to your online accounts and computer, so that in the event of any sad occurrence, financial decisions can be made on your behalf. You should also make a list of all your assets, debts, mortgages (if any) and pin codes for any cards you may currently hold on an excel spreadsheet. Remember to password this particular file and leave the password in a place your executor can have easy access to.

·        Keep your financial documents safe: this includes your account numbers, online IDs and passwords, birth and marriage certificates, email IDs and passwords, pin codes, life insurance papers, will, trust deeds, certificate of occupation in a safe envelope and go down to your local bank branch and keep it in a safe deposit box. Also include answers to secret questions such as mother’s maiden name, your city of birth and your pet’s first name. The banks usually charge an annual fee for such a service. First Bank offers such a service. Also make extra certified copies of all documents relating to your financial estate and keep it in the your executor’s custody. Inform your executor where these documents are kept and of course, write a letter of authority to the bank or lawyer authorizing your executor to act on your behalf in the event of any mishap.

·        Keep your executor and children prepared: stash an emergency fund for such an event by making your eldest child or executor a joint signatory to the account, to keep things running smoothly till the details of your financial estate are sorted out.

Crash Retirement Programme II

• Change your budget: you need to have a zero based budget at this stage of your life. With a zero based budget, you start from absolutely essential expenses, then move to other less essentials until you arrive at zero. Sadly, many of us concentrate on less essential expenses while we burden ourselves with a lot of unnecessary financial burden such as extravagant burial ceremonies: wedding ceremonies: aso-ebi e.t.c. Cut all these expenses and plough the money into your retirement savings. You must change your habit at this stage of your life. Do not feel guilty when you say “No” to discretionary expenses.
• Change your job if necessary: this may not sound right to a lot of people, but remember we’re talking about a crash retirement programme. You don’t have the luxury of young age. Better job for this purpose could be the one that gives you a higher pay: the one that gives you more free time to do some personal business or a job that provides you with a better pension. These will help in quickly building your retirement fund.
• Go Private: while I don’t encourage you to utilize your present employer’s time for your private business, you must make a better use of all your free time. Think about starting a private business on the side to enhance your income. However, don’t cheat your employer. With a private business, you secure two sources of income for yourself. The good thing about this is that you can eventually retire into your private business and fight boredom on retirement.
• Retire Late: assuming you’re not cut out for entrepreneurship, you may consider retiring later than the standard retirement age. The longer you stay, the bigger your retirement benefit is likely to be. However, this is not the best option and in any case, your employer is not likely to retain you till the old age of 70 – 75.
• Mind your health: I can’t say this enough. You are not getting any younger. Mind what you eat and what you do at this stage. Medical expenses can be quite high for people in your category and it’s not advisable for this to erode your retirement savings. Take medical advice on time and remember prevention is better than cure.
• Be Realistic: when making your projections and assumptions, be as realistic as possible. Create a realistic dream for yourself. Why, for instance, would you want to ride a hummer jeep at retirement when your retirement fund can only afford a Honda City? If you can, go ahead. That’s what retirement is all about – good life. But if you can’t, why build a castle in the air?

  

Crash Retirement Programme

One of the few things people worry about is the future in terms of retirement especially if you’re five years from retirement. I wrote an earlier article on retirement giving an insight into what individuals can do to buy back a bit of the time they had earlier wasted due to ignorance and non access to relevant information that may assist such individuals.

How do you know if you’re eligible for this program? You’re eligible:

·        If you’re worried about your age. You’re most likely to check the mirror every morning to count the number of new gray hairs or wrinkles you acquired while asleep the previous night.

·        You’re concerned about the little assets you possess and continuously ask yourself “what can I do?”

·        You happen to be one of those who had lived a good life in the past, you could have additional emotional problem of self-blame. The common “if I had known” thought continuously haunt you.

If you’re in this position, all hope is not yet lost. Although there’s little you can do about your past, there’s a lot you can still do before retirement. This is not the time to berate yourself for what you did wrong or right. You need to take proactive action by doing the following:

Check your needs: you need to figure out what you’ll need on retirement and compare with what you will have in retirement. You also need to decide the sum that will be adequate for your living expenses by comparing what your present living expenses are right now. If there are some items that are not really necessary, this is the time to ask yourself if you can do without these items. Learn to differentiate between your needs and wants.  Also don’t count on whatever you may receive from your children in form of financial assistance cos this may not be a regular or constant assistance. It has always been an age long belief of many Africans that their children will take care of them in old age. Often, this is rarely the case.

Save! Save! Save: I can say this a million times. You must save every kobo and naira you can, however small. Let this become your daily chore. You are no longer 25, 30 or 40 years of age; retirement is now around the corner. Saving should be your priority. You can do this via Additional Voluntary Contribution to your Retirement Savings Account (RSA). Ask your employer to increase your personal contribution to 10% or 15%. It is no longer a case of convenience but that of compulsion. Let this be your new way of life even if you’re just entering the labour market. Your latter years will be spent in bliss and peace.

Assessing my goals for September

Last month, I did not give an update of my expenses and savings goal for the month. It was a rather busy month for me which included a lot of travelling for business meetings and other official functions. This month, I really won’t be dwelling a lot on my total networth. Rather, i’ll be giving an update on how effective I was in tracking my daily expenses and monthly savings. August was a bit flat for me especially in terms of my investments on the stock market due to the prolonged bearish run, there were a few dips here and there but overall, I held on steady. Remember, my investment goals are long-term not short-term.

For the month of September, I increased my savings goals from $1,134 to $2,591 due to a recent 40% increase in my annual salary (my organization has decided to include mid-year salary reviews as part of its’efforts in maintaining internal equities amongst employees) also received monthly cooperative check payments to my accounts; invested $2,540 in some public offers and private placements while my pension contribution earned an additional income of $979. To this end, I can begin to focus on my expenses for this month cos while my monthly income has been increased, this has also led to an increase in my monthly contributions towards pension which puts me in relatively healthy financial shape.

So, what are my goals for October? Reviewing my savings goal for the year which was a million naira, I’ve been able to save a bit more than a million naira by pruning down on my daily expenses. Right now, I’m saving towards my next vacation coming up February 2008 (I don’t have a specific destination in mind right now) but I’m working on it. I need a break to enjoy and spoil myself a little while seeing some wonderful sights around the world.

This month, i’ll be tracking my expenses a bit more closely by recording whatever I buy in my little notebook and also keeping all receipts so as to know where my money is going. Last month, I got off on a good start by tracking my expenses and keeping tabs on receipts but somewhere down the line, I lost track of all the receipts and couldn’t even locate some because Iwas not recording it in my notebook. Due to the recent salary increase, I also intend to increase my monthly savings goal from 70% to 80%.

Are You Monitoring Your Pension Account?

Since the Pension Act 2004, many workers are still at a loss about their future, especially in relation to pension. Pension is a steady income given to a peron, usuallly after retirement or the payments a person recieves upon retirment, usually under pre-determined legal terms. In the past, many pensioners died without receiving their pension, and others gave up completely onit because of the stress they had to go through waiting to collect the sum accruable. More often than not, the pensions were never paid, because it was a defined benefit scheme, solely borne by one part – the emloyer.

The new scheme, which is a defined contribution plan, provides for an individual account for each participant, and for benefits based solely on the amount contributed to the acount, plus or minus income gains, expenses and losses allocated to the account. Contributions are paid into an individual account for each member. Because of the shared responsibility, defined contribution plans have become more widespread all over the world in recent years, and are now the dominant form of plan in many countries. But in spite of the benefits, many workers are still not yet sure whether their future is secured under the new contriutory pension scheme.

One of the ways to ensure this right is for workers to demand a quarterly statement of their accounts. When I decided to pitch my retirement fund with Pensions Alliance, I made it mandatory that my statemtents were to be sent in as at when due. For the first six months, they sent in timely updates but after these probationary period, I stopped receiving any updates. One of the few things I did was to call up the customer service line and ask to speak with their manager because in situations like this, you need to speak with the decisio maker and not the person who carries out the decisions. I spoke with her and explained how wrong it was for an organization like thiers not to send in timely reports to its’clients, upon which she apologised and said they had actually been sending it to my organizations headoffice but I was not receiving it. To resolve this dilemma, I wrote a letter via email asking the organization to send my pension statement account to my email box. Since then I’ve been reciving timely updates and have a good grasp of the income my fund is generating.

The quarterly account should indicate the profits made during the period, through investment with your money. Contributors must demand for a quarterly statements of their pension accounts from the PFAs cos let’s face it, if you can ask for your bank statements, you can do the same with your monthly pension contributions.

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.

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.

Middle Aged and No Investments –The Cooperative Option.

August 1, 2007 @ 8 a.m – Written by January

One of the best decisions I took in raising money for my investment goals was the idea of a Cooperative Union. It enabled me to raise the initial amount for Union Bank’s public offer. As the dream of financial freedom by Nigerians remains largely unrealized, more people are either forming new cooperative societies or joining existing ones in order to take advantage of pooling resources for investing purposes. Forming a cooperative society is relatively not too difficult because you can pool resources with your colleagues or join existing societies within your workplace.

I recently had a discussion with a friend of mine who stated the inability of her parents to achieve financial freedom due to little or no investment plans. I went further to ask if her parents were members of cooperative societies within their respective workplaces and she said no. After considering their current age (mid –50s) and considering retirement were still some few years away, I advised her to counsel them on the need to get started on the road towards financial freedom. Borrowing from a cooperative society is usually cheaper than the bank due to a lower interest rate, which is usually fixed at 10%. For some societies, it’s much more lower while for some, it’s zero interest. (You may decide to check out what obtains within your workplace). Joining a cooperative society makes the journey much easier and less stressful.

For instance, when my mum clocked 40 years, she had little or no savings due to her job as a lecturer with which she was barely making ends meet. So a friend of hers introduced the benefits of investing using pooled funds from the cooperative society. Both of them registered with the cooperative society within the institution and used the first loan (interest rate @ 10%) they collected to purchase 200,000units of Wema Bank. That was 10 years ago, now back to 2007 – she has grown her net worth through the stock market to 65,000pounds.

The cooperative society remains the cheapest ways of realizing our financial freedom within a developing economy such as Nigeria. This society entails groups of people coming together to pool resources so as to reduce the cost of borrowing from banks. This is the beauty of a cooperative society.