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.
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