After spending years of working while you save hard earnings for days when all allowances and paycheck are over in retirement and pension fund in a country like Nigeria where uncertainties are certain. I watched a news brief last week about Nigeria clamouring for retirement saving in pension fund. Thousands of these aged Nigerians were left in the scorching harsh weather because they need money they worked for all their life. I was really touched by the suffering of these adult. Is there no safe investment? Or must we wait until our saving is gone before we realise it? How safe is investment environment in Nigeria.
Investment environment metamorphosis from simple to complex situation in every part of the world, those who understand more make profit from the dynamism of the complexity. It is about time we got our brain working in terms of what to do when the working days are over so that we will not be stranded like our present pensioners. Same day I watched the telecast of pensioners and I also got my minute dollar cheque and annual report of one my investments in the foreign land. I started this with $100 few years back in gold investment although I have less investment capital but today when stock and other market crashed the commodities like gold is skyrocketing. An ounce of gold today is about $1,117 that’s reasonable enough. Just imagine those who have bought gold at $35 an ounce.
I have always talked about investment diversification not in the actual sense like mutual fund and other funds that still invest your money back to the stock market, except hedge fund because hedge fund is considered risky due to its own investment methodology. They can invest in anything that will yield profit that is why hedge fund manager are being paid for performance such as certain percentage of the profit unlike the mutual fund that receive commissions in both bull and bear time. When I talked about diversification, I mean investing something you have studied and understand the pros and cons. Don’t allow other people to that thinking for you. Be your own money manager is still the best and endeavour to pay for professional advice.
If you invest all money in stock market and it goes south for more than three years, how do you cope with life expenses that aggravate everyday if retire within the down time.
A better approach for a safe investment strategy for retirement is to first determine how much income you want to draw each year, taking into account all your living expenses including holidays and asset purchases. Multiply that figure by 3. That's how much you need to put away in 'defensive' assets. The rest of your nest egg keeps working for you in whatever 'growth' investments you are comfortable with and appropriate to your risk level.
Your income or pension drawdown is deducted only from your 'defensive' assets. Markets can go south for 3 years before you need to withdraw anything from your 'growth' assets. Too many financial advisers still use the 'risk profile' approach to investment strategies and rebalance the portfolio on a yearly or more frequent basis to keep the original asset allocation, crystallizing losses along the way if markets are in an extended downturn.
If you are close retirement and you are looking for safe way of investing if you are too old to learn about the intricacies of investment because the better way of investing is learning it, then invest in government bond and others. This seems to be safest if you want to take the easy pathway to building your retirement plan
The Federal Government has an investment scheme which is very secure. If you are keen to know more about just which are the best safe investments, you should have a look at the Government Treasuries. There are three types of treasuries, all of which are similar aside from the length of the term. Treasury Bills have a term length of one year or less, Notes are offered from one to ten years and Bonds for ten years and longer. The Government will use the money that you pay for these treasuries for investment and, in return, will guarantee you a fixed rate of interest.
Any schemes that carry the guarantee of the Federal Government are going to be the best safe investments. Although you may find that you are not getting a very high interest rate with this type of investment plan, as least you will know that you will have a safe and secured return on your hard earned money. In 2008, Lagos State Government issued bond with fixed interest rate. This is one investment you should be looking for if you don’t want to learn about trading and investing on your own.
At least if the Government does not guarantee absolute security you are looking with your money, you are still very sure and secure that it will yield little return. Other form of safe investment include: Certificates of Deposit (CDs)
Banks and credit Unions offer Certificates of Deposit for terms usually from 90-Days to 5-years. As long as the CD is offered by bank or insured credit union, your principal is guaranteed by the federal government. Because, they carry no risk (as noted above), certificates of deposit is an attractive and very safe investment. The interest from CDs is fully taxable. Most CDs are fixed for the term you select, but there are banks that offer callable CDs and even CDs linked to different market indices. Certificates of deposit generally offer yields that are better than Treasuries and Bonds, but you may want to do a tax analysis to see what the Tax Equivalent Yield is. In Nigeria, most banks issued CDs. You can approach your banker for better clarification. Don’t limit yourself to only one bank.
Treasury Bill
T-Bills are offered with a term length of 1-year or less. T-Notes are offered with a term length of 1-year to 10-years. Finally, T-Bonds are offered with term lengths greater than 10-years. We will collectively call these Treasuries. Treasuries are issued by the Federal Government and you are basically loaning them your funds for which they guarantee to pay you a certain interest rate. You will always get your principal back at maturity. Treasuries can also be purchased in large denominations. Their safety and ease comes with a relatively low rate of return. They can also be bought and sold in the secondary market. Treasuries are a safe investment, but as with any of these fixed income investments, they do carry the risk that interest rates and or inflation will rise during the term, thus eroding their spending power.
Every human has four endowments- self awareness, conscience, independent will and creative imagination. These give us the ultimate human freedom... The power to choose, to respond, to change says Steven Covey. You have the power to financial freedom over financial security through what you choose to do and respond in your environment.
See you next week
