WEALTH PATH

Wednesday, May 05

Begin Your Journey to Financial Freedom

 

Choosing the right investment solution is best done with a goal in mind. Such goals guide you towards the investment options that are best tailored to your objectives and serve as a critical reference point for all decisions. Some important considerations when translating goals into investment decisions include:

 

  • Risk: As an investor, your risk tolerance is a function of your willingness and ability to take on risk. It is important to reconcile your willingness (knowledge, experience, and attitude towards loss) and ability (current financial situation and liquidity needs) as you consider different investment options. Typically, younger people with fewer commitments are able to take on more risk than older people with greater financial commitments.
  • Return: Your required return on investment should be reasonably attainable within your investment constraints, especially the amount of risk you can tolerate. It is paramount that you consider your desired return on investment in tandem with your tolerance for risk as you review the investment options available.
  • Time horizon: This refers to how long you are willing to hold your investment or portfolio to achieve your investment objective. A short horizon is typically 3years and below whereas a long-term horizon is 10years and above.
  • Taxes: This takes into consideration your tax limits. While government issued securities (like treasury bills and FGN Bonds) are tax free, fixed deposit income and dividends from stocks are taxed at source (franked investments) and so a good understanding of your tax profile can help in making selections for your portfolio.
  • Liquidity needs: This measures the extent to which you are likely to require withdrawals from your investments. Significant liquidity needs may require you to convert considerable portions of your portfolio into cash to cover obligations at short notice and so may require investment in near cash instruments like fixed deposits and money market funds.
  • Legal and Regulatory Considerations: Some market regulations or country laws may prevent or restrict investors from investing in certain instruments. For example, in Nigeria, local investors (asides banks) cannot currently purchase OMO bills.
  • Unique Circumstances: These are personal preferences (ethical, religious, or social) that place restrictions on how your assets are invested. An example is where investors wish not to invest in companies whose activities have a significantly negative climatic impact.

Please note that your objectives and constraints will likely change over time. It is imperative that you revisit and update them regularly.

Are you ready to build a successful portfolio? Click HERE to get to our Investment profiler and answer a few questions that will guide you towards suitable asset allocation.