12-05-24 Investment as a christian

The speaker is discussing the various factors to consider when selecting an investment option, such as time horizon, risk tolerance, income level, and liquidity needs. They also explain different types of risks involved in investments, such as credit risk, market risk, liquidity risk, and diversification risk. The speaker then explains the sources of returns, including interest or coupon payments, dividends, capital gains, and FX gains. Finally, they discuss the available investment options for retail investors, including mutual funds, shares or stocks, index funds, fixed income securities, and real estate investment trusts. to invest and find why there are some investment opportunities that truly they might be limited to actually having a lot of money but there are a number of investment options, there are a number of savings options that we have that actually cater for retail investors, that's me and you. And before we go into that, we'll be looking at some of the things that we need to consider before we even talk about selecting an investment option. I think I mean the Bible in the book of Luke chapter 14 verse 28 downwards and which talks about a man, Jesus gave a parable about a man who wants to build a house and how he actually needs to take stock of everything which he has before he begins that project and discovers that he might not be able to complete it at the end of the day. So one of the first things that we need to consider before selecting an investment option is what is our time horizon? Are we looking at a long-term investment? Are we looking at a short-term investment? Are we looking at medium-term investment? So you talk about, okay, what's the purpose for saving? Are you maybe saving for your school fees? Are you saving for, are you saving to build a house? Are you saving for marriage? You can save for different things. And so that's one of the things you need to consider before selecting an investment option. The next thing is what is your risk tolerance? There are some of us that honestly if we invest in something and if it should just drop by one night and we start hyperventilating. And so if that's the case, then definitely you should be aware of the type of investment options that you are going to consider. And then if you are the type of person that's okay, you believe in high-risk, high-reward, high-stake games, then there are also investment options for you. Next thing you look at is your income level. So are you a low-income earner? Are you a moderate income earner? Are you a high-income earner? So these are some of the things, these are some of the questions that an investment advisor would actually ask before he creates an investment plan for you. And then lastly, you talk about your liquidity needs. Now liquidity in the sense that how urgently do you need money? How urgently do you need to convert your investment into money? Is it, are you someone that you are looking to convert your investment into money in the shortest possible time? Or are you the type of person that would, okay, you don't mind if it takes a while before you convert that investment as long as you gain, as long as you gain your returns on it? And like the previous speaker spoke, she talked about the risk and reward tradeoff. So you'll be talking about the fact that if you want to earn rewards, you need to take risk. Now the amount of risk that you are willing to take is what will determine the level of rewards, or the level of returns that you are going to earn. Now for low risk, definitely you'll be looking at low rewards. Low risk in the sense that your income is actually stable, your principal, that is your initial investment is stable, and then you'll be earning a little bit on top of it. And then for high risk investments, you'll be looking at higher returns, but now the tradeoff is the fact that, okay, you could actually lose part or even all of your principal. Okay, and so these are some of the risks that are involved in investments. There's something known as credit risk. Now credit risk is simply the risk of default. That is the risk that if I give somebody my money to invest, and then at the end of the day, maybe the person does not pay me back. And we see that typically when we are looking at loans, so when you maybe, if you loan out your money to somebody and then at the end of the day, when you expect to receive your returns, the person is not paying you back as I trained you. That is credit risk. We'll be talking about market risk. Market risk is the risk that prices would actually move against you. Now let's say I bought something for 19 Naira today, and I'm expecting that, okay, in the future, maybe I'll be able to sell it for a higher price, right? But if maybe in the next two weeks, in the next three weeks, I go back and something that I bought for 19 Naira is now trading for maybe 85 or even 18 Naira, that means that I've lost money. And so that is where market risk comes to play. It's the risk that prices would actually move against you. Yeah, talk about liquidity risk. Liquidity risk is the risk that, okay, you might not be able to convert your investment into money in the shortest possible time without incurring significant losses. And then diversification risk is the risk that, okay, maybe you are concentrated to a particular portfolio. Let's say I invested all my money in a particular, in a particular share. Maybe I invested all my money in the shares of MTN, and at the end of the day, maybe the shares of MTN do, does badly. Because of the fact that all of my money is in that, is in that particular investment, then I'll be looking at significant losses. So that's where diversification risk comes to play. The risk that, okay, you might lose all of your money or that you might lose a significant part of your money because you are heavily concentrated in a particular investment. Okay, so moving on to the sources of returns. So when you invest, there are three possible ways by which you would earn your returns. The first is by interest or coupon payments that, okay, you invest in something and then you are earning returns on the, you could earn the returns on a quarterly basis. You could earn returns on a monthly basis. You could earn returns on a semi-annual basis or even an annual basis. So now those coupon or interest payments are the first part by which we actually get, those are the enforcements of actually receiving returns. Then in the case of shares, you'll be looking at dividends. When you invest in the shares of a particular company and then they start paying dividends, then that is a source of earnings for the individual. Then the next thing is capital gains. Capital gains in the sense that I invested maybe 90 Naira in something and then at the end of the day, it's now trading for maybe 95 Naira. Now that is excluding whatever interest I would have earned on that particular investment. So that capital gain, that extra 5 Naira that I've earned on my investment because of price movement, that is what is referred to as capital gains. Then FX gains, that's foreign exchange gains. This applies when you are investing in foreign securities or foreign investments. We'll be talking about things like euro bonds. Euro bonds are bonds which are domiciled in a currency other than your local currency. So for instance, if I'm buying a dollar denominated bond today, that is referred to as a euro bond. And so with the recent FX that we've been seeing in the country, we've actually had some people that they've made even a 100% gain on their investments simply because of the foreign exchange movement. And given the fact that you are still going to spend your money in Naira since you are living here, there's the part that, okay, with this FX gain, they're definitely in a better position than maybe someone who just left his investment in the local currency, which is Naira. Okay, and then moving on into the meat of today's lecture, we'll be talking about the available investment options for us as young believers. And the first one is I'm talking about the mutual funds or exchange-traded funds. Now, for mutual funds, the idea is just a pooling of resources. Now, we have, there are a number of us here today, and if we decide that, okay, everyone should come around and everyone just contribute a certain amount of money, contribute a certain amount of money, and then by the time we pool that investment, and that's what we then use to invest in certain securities or certain investment options. Now, the idea is for investments that typically wouldn't be accessible to us as retail individuals, because of the fact that we are pooling our funds together, because of the fact that, okay, we're actually sharing that investment across a number of people. So we have, so there is the possibility of actually investing in some other restricted securities that we might not have access to due to volumes. Next of them is shares or stocks. Now, when you invest in, you have a certain degree of ownership in a particular, in a particular company. Let's see, I'm still focusing on the example of MTN, for instance. You invest in the shares of MTN. That is, you have a degree of ownership in MTN. Then the next thing is index funds. Index funds just tracks the behavior of a particular set of securities. It tracks the behavior of a particular set of investments. Now, let's say we look at, okay, the top performing shares in our Nigeria Stock Exchange. And you look at the fact that, okay, you need to, you can't realistically invest in all of those, in all of those securities. So what you do is you invest in an index fund, and that index fund just tracks the behavior of those securities. And then you end returns based on their performance. Then the next thing is fixed income securities. Fixed income securities are investment options whereby, okay, you know how much you are going to receive from the beginning. And now we talk about things like bonds whereby, okay, you know the, you know the interest that you are going to receive maybe on a semi-annual basis or on an annual basis. We talk about things like treasury bills which are short-dated securities. And treasury bills are discounted instruments. Discounted in the sense that, okay, you are supposed to receive 100 Naira in the future. So what we do is, okay, I sell it to you at 90 Naira today, and then upon maturity, you receive that 100 Naira. And then lastly, we're talking about real estate investment trust. Real estate investment trust in the sense that, now let's take this building as an investment, as an investment asset, for example. Now, typically a lot of people might not be able to afford to just invest everything, to just buy this building at once. So what happens is, you have some special purpose vehicles that, they buy that building, and then they divide it into units, and then sell it to various individuals. And, so, speaking about how to invest, I think a lot of people don't know that you can speak to your bankers, you can speak to your local bank, and then actually meet them that you want to invest in fixed income securities. You could tell them that you want to invest in bonds. You could tell them that you want to invest in treasury bills. And then they will tell you the, and then they will tell you the rate at which, they will tell you the rate at which you would actually earn interest. And you could write an instruction to them to debit your account for the investment amount. And then, when the investment matures, you receive the relevant coupon in your you receive the relevant coupon in your account. Now, the next thing is, we have investment brokers. Now, we have investment brokers like Coronation Securities. We have Meristem Brokers. We have Stambic IBTC Asset Managers. And, so, what would happen with this type of, with this type of brokers is typically, they require you to open a securities account. It's referred to as a CSCS account. So, once you open that securities account, and then from there, you can then determine, okay, what do you want to invest in? Do you want to invest in fixed income securities? They could help you do that. Do you want to invest in mutual funds? They could help you do that. And then, even if you want to invest in just the shares of MSET, if you just want to invest in the shares of certain companies as well, they are also on hand to do that. So, and it's a relatively pain-free process. You can download any of their apps via the Play Store. I think for Coronation, the app is referred to as a wealth, Coronation Wealth app. For Meristem Brokers, you will be able to see the Meristem app. For Stambic IBTC, you will see Stambic Asset Management app as well on the Play Store. So, once you go there, you fill out the forms, and then at the end of the day, you have a securities account that is open for you. Now, with this securities account, the first thing that they will do, like those questions that I initially asked at the beginning of this, at the beginning of this lecture, that they find to, okay, I want to understand what is your investment profile. I want to understand, okay, what is your level of risk tolerance? What is your level of liquidity needs? And then, based off of that, they would actually recommend investment options for you. So, you have options to invest in mutual funds. You have options to invest in stocks. You have options to invest in specific securities. And for those people that are looking at maybe short-term gains, for people that are looking at, okay, maybe short-term interest, interest in any options, you can look at things like commercial papers. Now, recently, commercial papers have been, the rates have been quite high. So, you have commercial papers that are returning even double or even triple what you might earn just traditionally saving your money with a normal fixed income, I'm sorry, with a normal fixed deposit account. Then, the next thing is, okay, identifying mutual funds that are tailored to your specific needs. Now, we have mutual funds that, like I mentioned earlier, mutual funds are meant to target, mutual funds are meant to target, okay, pulling resources together and then investing in a particular investment option. You could invest in, so you have mutual funds that are tailored towards money markets. Money markets are simply short-term instruments like treasury bills, commercial papers, and the like. Then, you have some mutual funds that are tailored towards the capital markets. Capital markets is longer-term. You'll be looking at investment above one year. And so, there's things like bonds, euro bonds, and the like. You'll be talking about some that are tailored towards equity. That is, mutual funds are actually investing the securities of some, the securities of some companies. And then, lastly, I would advise that we all download the savings app. There are apps like CaliWise. There's Trove. There's Bamboo. There's AppInvest. So, the benefit of these applications is that they help to automate savings. So, if you are the type of person that's, okay, maybe you are a little forgetful or you are the type of person that maybe you procrastinate a bit, with these targeted savings and with these automated savings plans, you can set it up that, okay, maybe my salary comes in on the 22nd, and then by the 23rd or the 24th, they actually pull out what the amount I've said that I'm going to be saving periodically. And so, those are some of the ways by which we invest. And before I leave, some additional piece of advice. So, the first thing is, please don't be afraid to start small. Again, a lot of people have the misconception that, okay, you need to have a larger sum of money with you before you can actually start investing, but it pays to start small. When you start small, you build up the habit, and as time goes on, by the time you start taking account the effect of compound interest, compound interest in the sense that, okay, I invested, I earned, maybe I invested 1,000, I earned 100 Naira. Instead of me starting again and investing another 1,000, I now have 100 Naira that I can invest that interest that I've earned. And now, through the impact or through the effect of compounding, you discover that you're actually earning more than you were just using the simple interest. And the next step is creating an emergency fund. Truthfully, we don't know what would happen. There's the fact that, okay, we all plan, but at the end of the day, situations can arise, but it pays for us to have an emergency stock or fund somewhere whereby we can quickly fall back on. Then, this is really important. Please, try to take advantage of insurance whenever you can. So, there's this misconception about insurance. Fine, God is our protector, no doubt, but insurance actually helps when you have unforeseen circumstances, when you have unforeseen situations that might arise. Now, take, for instance, if you are driving somewhere and then maybe somebody bashes your car or something. Now, you didn't plan for that, but if you had insurance, simply because of the fact that, okay, you've insured yourself against that particular risk, then you know that, at the end of the day, you will have that sort of comfort. You will have that sort of, let's say, confidence and peace of mind that, okay, even if something happens, I know that I've already insured against this type of risk, and someone will be actually willing to pick up the tab for that. Next thing, we're talking about health insurance. For some of us, we go to the hospital for checkups, and because of the fact that we don't have insurance, then by the time we start seeing the insurance bill, I'm sorry, by the time we start seeing the medical bill, it now becomes a source of worry. But with health insurance, and for a relatively low amount, you'll be able to help mitigate against some of these risks. Next thing is diversify your portfolio. Try to edge your risk. And lastly, please always do your research whenever you are making investments, whenever you are taking any sort of investment. I believe this has blessed someone here today. Thank you very much. Thank you.