Investment is often a subject of conversation amongst many people with a monthly income who wonder where to invest their savings or outstanding earnings after setting aside funds for living expenses.
The question then requiring consideration is:
What is the meaning of Investment? Among many definitions that can be found in books and on the Internet, a simple explanation of investment is that it is deferred consumption, which involves purchasing an asset, giving a loan or keeping funds in a bank account with the aim of generating future returns. Various investment options are available, offering differing risk-reward trade-offs. When one understands the core concepts of investing and follows through with thorough analysis of available investment options, an investor can maximize returns while minimizing risk exposure.
There are many investment options available but we will focus on Cash Investements, Debt Securities, Mutual Funds, Stocks or Equities, and Real Estate:
Cash investments
These are short-term investments whereby cash is deposited and returns are received on such within the short period agreed usually a year or less. Its name derives from the fact that such investments can quickly be converted to cash if necessary.
These include savings bank accounts, certificates of deposits (“CDs”) and treasury bills. This investment option pays low rate of interest and can be risky in times of high inflation. In Nigeria, there are a lot of cash investment instruments available such as Bankers Acceptances (“BA”), Promissory notes and Commercial Papers. These instruments are traded by money market dealers such as banks and discount houses. What other investment options are currently available within the Nigerian Market?
Debt securities
These are interest-paying bonds, notes, bills, or money market instruments that are issued by governments or corporations. Some debt securities pay a fixed rate of interest over a fixed time period in exchange for the use of the principal. In such investment options, the principal, or face value, is repaid at maturity. Some are pass-through securities, with principal and interest repaid over the term of the loan. Still other issues are sold at discount, with interest included in the amount paid at maturity. This form of investment is safer and is less risky compared to buying stocks. Of note however is the fact that returns are generally lower than other securities.
Stocks or equities
This is an instrument that signifies ownership position or represents a claim on one’s proportionate share in the corporation’s assets and profits. A person holding such an ownership in the company does not enjoy the highest claim on the company’s earnings. Rather, such stock holder’s claim is subordinated to that of a creditor, and the equity holder will only enjoy distributions from earnings after these higher priority claims are satisfied. Stock or equity investments are riskier than bonds or debt security investments. Before investing in stocks, one needs to do thorough research on the company of interest or employ the services of professionals such as asset management houses to avoid exposure to very risky companies.
Mutual funds
Mutual funds are professionally managed collective investment schemes that pools money from many investors and invest typically in investment securities such as stocks, bonds, short-term money market instruments, other mutual funds, other securities, and/or commodities such as precious metals and crude oil. The mutual fund should have a Fund Manager that trades (i.e. buys and sells) the fund’s investments in accordance with the fund’s objectives.
Monday, April 04, 2011
Friday, April 01, 2011
Bank Like a Banker: Save Money
The business of banking in the land has changed dramatically over the last decade or there about. Most Banks have realized that the cost of doing business the old-fashioned way is no longer effective and they are gradually changing their customers' behavior by encouraging electronic banking alternatives whenever possible. They have done this by charging high fees for services that were once free. If you pay a lot of money in annual fees for banking, it's time to do some competitive shopping.
Before becoming furious with your bank, it may be that the products you're using no longer meet your personal needs. If you have an established relationship with your bank, inquire about the other types of lower-cost cheque and savings account products.
By understanding the rationale of why a bank charges fees for different services will allow you to be a savvy banking customer. If human contact is required to serve you, such as a teller or personal banker, this is very expensive for the bank. The motivation is for banks to encourage more high-tech, "low-touch" methods of meeting your needs. This is accomplished by servicing as many customers as possible with automated telephone services, cash machines, and online self-service banking.
Since the bank needs to train their employees, provide salary and benefits, pay for the branch building, in some cases supply uniforms etc., it is conceivable that your one banking transaction per pay period could cost the bank N300($2) or more for your one banking transaction.
If you do your banking through an automated telephone system or an Automated Teller Machine (ATM), the cost of this type of transaction is much less expensive. However, if you then require assistance from a telephone banker, the price goes from N100 ($1) for the automated process to as much as N200 ($2) for human contact. For the same reasons stated above, the training, location, computer equipment, etc. become more expensive when human interaction is needed.
Now it is clear why electronic banking methods are preferred by financial institutions. In fact, most banks are rewarding their customers with lower fees the more the customer does his/her banking electronically. For example, even though Automatic Teller Machines (ATMs) costs the bank around $100,000 each plus the cost of the computer network and maintenance, the cost of these type of transactions drop to N50 to N100($0.50 - $1) each. Not only are these machines more cost effective, the 24-hour availability to customers is very convenient.
With the ease and convenience of Automatic Clearing House (ACH) payments, this "checkless" process drops the price. And finally, the Internet drops the expense even further. I realize that there is still some fear of banking electronically, but the security that banks have instilled with computer technology far surpasses the current security of traditional banking methods. If you lose your checkbook and wallet, the cost and worry of canceling these checks is very tedious. It's very possible that a thief could forge your name and deplete your accounts in a matter of hours. The sophisticated computer technology, however, although not perfect, has a far more secure system to protect you and your money.
Avoid being the bank's best customer. Attempt to cut your annual bank fees in half by educating yourself. Inquire about the options and products available to you with your banker. By asking about the alternative banking methods, you may find that your bank fees will drop considerably.
Before becoming furious with your bank, it may be that the products you're using no longer meet your personal needs. If you have an established relationship with your bank, inquire about the other types of lower-cost cheque and savings account products.
By understanding the rationale of why a bank charges fees for different services will allow you to be a savvy banking customer. If human contact is required to serve you, such as a teller or personal banker, this is very expensive for the bank. The motivation is for banks to encourage more high-tech, "low-touch" methods of meeting your needs. This is accomplished by servicing as many customers as possible with automated telephone services, cash machines, and online self-service banking.
Since the bank needs to train their employees, provide salary and benefits, pay for the branch building, in some cases supply uniforms etc., it is conceivable that your one banking transaction per pay period could cost the bank N300($2) or more for your one banking transaction.
If you do your banking through an automated telephone system or an Automated Teller Machine (ATM), the cost of this type of transaction is much less expensive. However, if you then require assistance from a telephone banker, the price goes from N100 ($1) for the automated process to as much as N200 ($2) for human contact. For the same reasons stated above, the training, location, computer equipment, etc. become more expensive when human interaction is needed.
Now it is clear why electronic banking methods are preferred by financial institutions. In fact, most banks are rewarding their customers with lower fees the more the customer does his/her banking electronically. For example, even though Automatic Teller Machines (ATMs) costs the bank around $100,000 each plus the cost of the computer network and maintenance, the cost of these type of transactions drop to N50 to N100($0.50 - $1) each. Not only are these machines more cost effective, the 24-hour availability to customers is very convenient.
With the ease and convenience of Automatic Clearing House (ACH) payments, this "checkless" process drops the price. And finally, the Internet drops the expense even further. I realize that there is still some fear of banking electronically, but the security that banks have instilled with computer technology far surpasses the current security of traditional banking methods. If you lose your checkbook and wallet, the cost and worry of canceling these checks is very tedious. It's very possible that a thief could forge your name and deplete your accounts in a matter of hours. The sophisticated computer technology, however, although not perfect, has a far more secure system to protect you and your money.
Avoid being the bank's best customer. Attempt to cut your annual bank fees in half by educating yourself. Inquire about the options and products available to you with your banker. By asking about the alternative banking methods, you may find that your bank fees will drop considerably.
Wednesday, March 30, 2011
The Wisest Investment You'll Ever Make
If you think this is about buying stocks, bonds, real estate, gold, jewels, etc., you're totally wrong! All of these can and are good investments, but your children are the wisest investment you'll ever make. Teaching your children to be well-rounded individuals will help them out in the long run to fit into and contribute to society. As they contribute in society this in turn helps out everyone, including you as a parent.
Giving your children the right skills and knowledge can be one of the most gratifying and wisest choices you'll every make. Think about it: Who is the one that should have the most influence on your children? It is a parent. Parents can work with their children at a young age helping them develop skills that will last a lifetime. These skills cannot be learnt overnight. As parents you must let your children see you applying the skills you are trying to teach them.
There are a number of areas in which parents can help their children develop. Some of these areas would include: a good work ethic, ability to work and interact with others in many settings, good ethics and respect for the laws of the land, good understanding of financial matters and learning at a young age to work toward financial independence.
A good work ethic is a skill that is developed over time. As an employer or business owner, you appreciate the efforts that are extended in your work or business. As an employee you should feel satisfaction in working hard and accomplishing whatever task you may be working on and in being honest with your employer. Employees that work hard will get noticed by their employer and treated accordingly.
Teach your children at a young age to work hard and do their chores. Young children should be given chores or small jobs to do. By doing this at a young age your children will learn responsibility and learn not to quit when the going gets rough. They must imbibe from a tender age the ability to work hard. Having a good work ethic will help determine what kind of earning power your children will have as adults. If your children can be taught these skills while they are young they are more likely to be financially secure in years to come.
Children that have been taught the skills of getting along with others in different social settings will have an advantage when they become adults. This advantage will come into play when they interact with other people in business, social, and financial settings. For example: In the business world you run into all kinds of people and you need to know how to act in order to be successful. These skills can be taught to young children by letting them interact with children similar in age and, as the children get older, be involved in activities with other children.
By doing this the children learn good social skills and witness different attitudes and types of people. The more your children have chances to interact with other children during their growing up years, the better their social skills are and the better they are at dealing with other people. During this time that your children interact with others you will want to visit with them to see if they have issues concerning the way other children act or behave. When you talk with your children you will help them understand the correct way to handle different situations that come up.
Helping your children to develop good ethics for country and laws of the land is very important. Good examples from parents are one of the main keys in helping your children develop these skills. If your children see you obeying the laws of the land, including paying your taxes, they will see that this important. If they see that you always jump the traffic light they will end up doing the same. Talk to your children about the laws of the land. Tell them that you may not always agree with all the laws, but nonetheless they are the laws and must be followed. Let them know that as citizens there is a process that can be followed to change the laws when we don't agree with them.
Discuss with your children why we pay taxes and what our taxes are used for. As your children understand that tax money is what supports the government and a lot of the programs we have in society, they will begin to understand the importance of paying taxes. It would also be good to discuss with your children areas in government where the money is not spent wisely. Let them know that the government is not fiscally responsible all the time. There are areas for improvement. Discuss with your children ways you or they can get involved in government of local issues. Volunteering time for community activities will help your children gain the spirit of community service. As your children serve in the community they are more likely to become better citizens and obey the laws of the land.
Financial independence is a goal we all should be working for. It is very important that you teach your children ways to become financially independent. They are most likely to learn these skills from you as the parents. While your children are young make them aware of what you are doing in your investments and long term financial planning. When your children get older let them get involved in your financial planning and help them to do some of their own investing. If you can start setting aside some money for your children shortly after they are born, they will then have some money to start investing when they get old enough to learn and take part.
You as the parents have the greatest opportunity to influence your children to become well-rounded individuals. If you are willing to invest in your children's future, they can develop a good work ethic, build good social skills, become outstanding citizens in their local communities and become financially independent. The investment is definitely worth it, because one day your children may be the leaders of the future.
Giving your children the right skills and knowledge can be one of the most gratifying and wisest choices you'll every make. Think about it: Who is the one that should have the most influence on your children? It is a parent. Parents can work with their children at a young age helping them develop skills that will last a lifetime. These skills cannot be learnt overnight. As parents you must let your children see you applying the skills you are trying to teach them.
There are a number of areas in which parents can help their children develop. Some of these areas would include: a good work ethic, ability to work and interact with others in many settings, good ethics and respect for the laws of the land, good understanding of financial matters and learning at a young age to work toward financial independence.
A good work ethic is a skill that is developed over time. As an employer or business owner, you appreciate the efforts that are extended in your work or business. As an employee you should feel satisfaction in working hard and accomplishing whatever task you may be working on and in being honest with your employer. Employees that work hard will get noticed by their employer and treated accordingly.
Teach your children at a young age to work hard and do their chores. Young children should be given chores or small jobs to do. By doing this at a young age your children will learn responsibility and learn not to quit when the going gets rough. They must imbibe from a tender age the ability to work hard. Having a good work ethic will help determine what kind of earning power your children will have as adults. If your children can be taught these skills while they are young they are more likely to be financially secure in years to come.
Children that have been taught the skills of getting along with others in different social settings will have an advantage when they become adults. This advantage will come into play when they interact with other people in business, social, and financial settings. For example: In the business world you run into all kinds of people and you need to know how to act in order to be successful. These skills can be taught to young children by letting them interact with children similar in age and, as the children get older, be involved in activities with other children.
By doing this the children learn good social skills and witness different attitudes and types of people. The more your children have chances to interact with other children during their growing up years, the better their social skills are and the better they are at dealing with other people. During this time that your children interact with others you will want to visit with them to see if they have issues concerning the way other children act or behave. When you talk with your children you will help them understand the correct way to handle different situations that come up.
Helping your children to develop good ethics for country and laws of the land is very important. Good examples from parents are one of the main keys in helping your children develop these skills. If your children see you obeying the laws of the land, including paying your taxes, they will see that this important. If they see that you always jump the traffic light they will end up doing the same. Talk to your children about the laws of the land. Tell them that you may not always agree with all the laws, but nonetheless they are the laws and must be followed. Let them know that as citizens there is a process that can be followed to change the laws when we don't agree with them.
Discuss with your children why we pay taxes and what our taxes are used for. As your children understand that tax money is what supports the government and a lot of the programs we have in society, they will begin to understand the importance of paying taxes. It would also be good to discuss with your children areas in government where the money is not spent wisely. Let them know that the government is not fiscally responsible all the time. There are areas for improvement. Discuss with your children ways you or they can get involved in government of local issues. Volunteering time for community activities will help your children gain the spirit of community service. As your children serve in the community they are more likely to become better citizens and obey the laws of the land.
Financial independence is a goal we all should be working for. It is very important that you teach your children ways to become financially independent. They are most likely to learn these skills from you as the parents. While your children are young make them aware of what you are doing in your investments and long term financial planning. When your children get older let them get involved in your financial planning and help them to do some of their own investing. If you can start setting aside some money for your children shortly after they are born, they will then have some money to start investing when they get old enough to learn and take part.
You as the parents have the greatest opportunity to influence your children to become well-rounded individuals. If you are willing to invest in your children's future, they can develop a good work ethic, build good social skills, become outstanding citizens in their local communities and become financially independent. The investment is definitely worth it, because one day your children may be the leaders of the future.
Tuesday, March 29, 2011
Money - The Crucial Team Sport
Imagine if you will that you are NASCAR driver. (Now don't overextend this metaphor-just go with the flow!) You start the race and put the pedal to the metal. The crowd is flying by in a whirl of colors. You're exhilarated by the speed. You're starting to pass some of the other drivers. You are feeling pretty confident about this race. "Eat my dust!" you yell to no one in particular. Just when you're at the top of your game, you suddenly realize your fuel is getting low. You pull over to the side, turn off the car, get out, refuel it yourself, get back in and restart the car, and off you go once again, having lost valuable time.
A few laps later and things are looking up. You're starting to cut down some of the lead that the other cars have had on you. Next thing you know you blow a tire, which you had forgotten to check at your refueling pit stop. So once again you exit the race, turn off the car, get out, change the tire, get back in and reenter the race. Now you're only 30 laps behind, but you think, "This baby's got power-no problem!" You hit the gas pedal and try to make up for lost time. After only a few laps, though, you're low in fuel-again! Once more you exit the race and refuel your car yourself. As you watch your competitors flying by, you are beginning to realize that this is a race you cannot win.
You compare yourself to the winner of the race and wonder what the difference is. Is it your car? No, it's the same model as his. Is it his accessories? Wrong again. You've got everything he does. Is it your skills? Who knows? You seem to drive just as well as he does. Then what seems to be lacking? He must have something you don't. You rack your brain and finally conclude that the only thing he has that you don't is a "small" thing called a TEAM. His team takes care of his refueling and tire changing and all those necessary details, allowing him to focus on the task at hand - winning. You, on the other hand, have been trying to do it all yourself.
A team makes all the difference between winning and losing. The losers of this world are those people who take it upon themselves to do everything single-handedly. These are the do-it-yourself-at-all-costs folks. They believe that nobody can do things as well as they can. Winners, however, understand the importance of synergy (1+1 = more than 2). Winners assemble a team.
How do you win the Super Bowl, Stanley Cup, World Series, NBA Championship, World Cup, or any other athletic event for that matter? With a team consisting of coaches, players, staff, and a whole lot of other supporting people. Nobody wins on his own. A great coach is nothing without great players. A great player gets nowhere without a great coach (and probably a great agent, too!). Great coaches and players can do nothing without facilities and the people to take care of them; without doctors and nutritionists, physical therapists and other sports medicine professionals; without team owners and financial backing from advertisers. The list could go on endlessly.
You see, everything you do is inherently connected to a team: eating your food, reading your newspaper, buying a home, driving to work. Think about all the teams involved in each of these situations. In fact, the world is so dependent on connections that we cannot function without teams. And yet when it comes to money that is exactly what many of us try to do. We think we know everything we need to know about handling our finances, and no way are we going to pay someone to help us, even if it nets us more in the long run.
Like the winners of the world, the wealthy of the world assemble teams to help them build their financial futures and keep them. The wealthy see their team as an investment, an investment to protect their investments, so to speak. Their team consists of (but is not limited to): a good honest attorney, a tax consultant, an accountant, and many others whose job it is to keep them [the wealthy] wealthy.
So, how would you go about building a team whose job it is to lead you on to financial victory? The first place to start is a mentor, who is probably the most important part of your team. A mentor is someone or something that guides you along your path to wealth (and presumably he or she has already walked that road). Mentors don't have to be actual people (although this is extremely useful for feedback and one-on-one support). Mentors can also be books and other information. Experiences can also serve as mentors. You may have many mentors at different points in your life; often they show up just when you seem to need them. Mentors can also be key to introducing you to other potential team members, such as attorneys, planners, consultants, investors, accountants, etc.
Using a team to achieve your goals is really much simpler than doing it yourself. Nobody can know everything about everything, which is why there are different jobs for different people. There is no way you could learn in your lifetime eve rything you need to know to achieve financial success if you try to learn it all by yourself, one piece of information at a time. Using the collective resources of your team will greatly simplify your life and infinitely expand your returns. Truly, a team is the only way to win.
GO, TEAM, GO!
A few laps later and things are looking up. You're starting to cut down some of the lead that the other cars have had on you. Next thing you know you blow a tire, which you had forgotten to check at your refueling pit stop. So once again you exit the race, turn off the car, get out, change the tire, get back in and reenter the race. Now you're only 30 laps behind, but you think, "This baby's got power-no problem!" You hit the gas pedal and try to make up for lost time. After only a few laps, though, you're low in fuel-again! Once more you exit the race and refuel your car yourself. As you watch your competitors flying by, you are beginning to realize that this is a race you cannot win.
You compare yourself to the winner of the race and wonder what the difference is. Is it your car? No, it's the same model as his. Is it his accessories? Wrong again. You've got everything he does. Is it your skills? Who knows? You seem to drive just as well as he does. Then what seems to be lacking? He must have something you don't. You rack your brain and finally conclude that the only thing he has that you don't is a "small" thing called a TEAM. His team takes care of his refueling and tire changing and all those necessary details, allowing him to focus on the task at hand - winning. You, on the other hand, have been trying to do it all yourself.
A team makes all the difference between winning and losing. The losers of this world are those people who take it upon themselves to do everything single-handedly. These are the do-it-yourself-at-all-costs folks. They believe that nobody can do things as well as they can. Winners, however, understand the importance of synergy (1+1 = more than 2). Winners assemble a team.
How do you win the Super Bowl, Stanley Cup, World Series, NBA Championship, World Cup, or any other athletic event for that matter? With a team consisting of coaches, players, staff, and a whole lot of other supporting people. Nobody wins on his own. A great coach is nothing without great players. A great player gets nowhere without a great coach (and probably a great agent, too!). Great coaches and players can do nothing without facilities and the people to take care of them; without doctors and nutritionists, physical therapists and other sports medicine professionals; without team owners and financial backing from advertisers. The list could go on endlessly.
You see, everything you do is inherently connected to a team: eating your food, reading your newspaper, buying a home, driving to work. Think about all the teams involved in each of these situations. In fact, the world is so dependent on connections that we cannot function without teams. And yet when it comes to money that is exactly what many of us try to do. We think we know everything we need to know about handling our finances, and no way are we going to pay someone to help us, even if it nets us more in the long run.
Like the winners of the world, the wealthy of the world assemble teams to help them build their financial futures and keep them. The wealthy see their team as an investment, an investment to protect their investments, so to speak. Their team consists of (but is not limited to): a good honest attorney, a tax consultant, an accountant, and many others whose job it is to keep them [the wealthy] wealthy.
So, how would you go about building a team whose job it is to lead you on to financial victory? The first place to start is a mentor, who is probably the most important part of your team. A mentor is someone or something that guides you along your path to wealth (and presumably he or she has already walked that road). Mentors don't have to be actual people (although this is extremely useful for feedback and one-on-one support). Mentors can also be books and other information. Experiences can also serve as mentors. You may have many mentors at different points in your life; often they show up just when you seem to need them. Mentors can also be key to introducing you to other potential team members, such as attorneys, planners, consultants, investors, accountants, etc.
Using a team to achieve your goals is really much simpler than doing it yourself. Nobody can know everything about everything, which is why there are different jobs for different people. There is no way you could learn in your lifetime eve rything you need to know to achieve financial success if you try to learn it all by yourself, one piece of information at a time. Using the collective resources of your team will greatly simplify your life and infinitely expand your returns. Truly, a team is the only way to win.
GO, TEAM, GO!
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