Investing your hard-earned money is one of the most critical decisions you will take on life. Just like building a house or embarking on any other important activity, you need a map out a strategy on how to get to the right destination.
An Investment Policy Statement (IPS) is a document that communicates a client’s investment goals and the strategies that will serve as a guide for managing a portfolio.
The IPS can also be defined as a map, activity schedule and outcome document between a financial advisor and a client. A client can include and individual investor or a company.
Importance of an Investment Policy Statement
- The IPS serves as a guide in ensuring that clients stay focused on their states objectives which they may be tempted to deviate from when market conditions worsen.
- The IPS keeps both the client and advisor on the same investing page and holds both parties accountable to a certain standard. This Is because the expectations as to what both parties would be doing will be clearly stated.
- It helps in ensuring transparency in the relationship between advisor and client.
Elements of an Investment Policy Statement
However, an IPS should contain these elements regardless of who the client is;
- Duties of Financial Advisor
- Financial Objectives/Goals
- Risk and Return Expectations
- Time Horizon
- Target Asset Allocation
- Diversification Policy
- Performance Monitoring
Using the elements stated above let’s draft an investment policy for Mr XYZ hoping to retire in a few years’ time.
Married with 2 children
Current Assets: N10 million
Duties of Financial Advisor
To help the client meet long term financial goals.
To Create the right mix of Asset Allocation.
To select assets in accordance with asset allocation providing sufficient diversification of risk and returns.
Monitor all investment options and valuation of portfolio holdings on a regular basis.
Provide monthly reports that shows assets, inflow and outflow of cash, income, and monthly change in value of total portfolio.
Financial Objectives/ Goals
Return Goal: 50%
Financial Independence and retirement at age 60
Legacy: To leave debt-free properties to each of his two children in a choice area in Lagos.
To travel to different countries in different continents within a year if retirement.
Risk & Return Expectation
Target retirement year: 15 years from now.
Target Asset Allocation
Treasury Bills – 50%
Equities – 25%
Commercial Paper – 10%
Cash – 10%
Property/REITS – 5%
No one fund or account should comprise more than 50% of a given asset class, except cash, with a 45-50% threshold for rebalancing.
The portfolio will be reviewed annually on the end of January of each year.
When next you want to hand over some money to a financial advisor to invest for you, it is best you talk to him/her about drafting an Investment Policy Statement that will keep both parties on the same page about investment objectives and returns.
CADBURY, GUINNESS plunge amid profit-taking at Nigeria’s stock market
With 50 losers to 14 gainers, sectoral indices closed mostly negative, as the NSE Insurance Index led the decliners with 6.70%.
Nigerian stocks ended the fourth trading session on a bearish note. The All Share Index closed south, dropping by 0.12% to close at 41,099.15 index points.
Year-to-date return and market capitalization settled at 2.06%, and N21.49 trillion respectively.
- A total volume of 1.12 billion units of shares, valued at N6.39 billion exchanged hands in 7,404 deals. TRANSCORP (-9.38%) finished the most traded shares by volume, while GUARANTY (-0.15%) topped by value at N2.04 billion.
- With 50 losers to 14 gainers, sectoral indices closed mostly negative. The NSE Insurance Index led the decliners with 6.70%.
- The NSE Consumer Goods and Banking Indexes trailed distantly, down by -0.30% and -0.23% respectively.
- On the flip side, the NSE Industrial & Energy Indexes advanced marginally by +0.27% and +0.15% respectively.
- NNFM up 10.00% to close at N9.68
- CHAMPION up 9.88% to close at N1.78
- NCR up 9.65% to close at N2.84
- WAPCO up 5.47% to close at N27.95
- ARDOVA up 3.54% to close at N20.45
- MRS down 9.82% to close at N12.4
- CADBURY down 9.72% to close at N9.75
- FLOURMILL down 2.77% to close at N31.6
- GUINNESS down 2.37% to close at N18.5
- DANGCEM down 0.21% to close at N234
Nigerian stocks ended the last trading session of the week on a negative note amid soaring oil prices prevailing at the U.S trading session.
- The market struggled to close in the positive territory as profit-taking was seen on stocks across the board.
- Nairametrics expects you to seek the advice of a certified stockbroker or financial advisor in choosing stocks to buy, as some Nigerian stocks exhibit cyclic return.
The Nigerian insurance sector; repositioning for efficiency
For the industry to thrive, the regulators may also need to deepen micro insurers’ activities in the Nigerian economy.
The Nigerian Insurance sector is critical to propelling income equality and reducing the poverty level of any society, but the industry’s performance has continued to drag amid many factors, such as; low underwriting capacity of players, lack of trust by consumers, poverty and the inadequacy of distribution infrastructure.
These factors have jointly contributed to the abysmal level of insurance penetration – the proportion of insurance business to the gross domestic product over the years.
The Nigerian Insurance sector remains largely underdeveloped with Insurance penetration still at c.0.5% to GDP. The sector which contracted by 18.67% y/y in the Q3 GDP report released by the National Bureau of Statistics (NBS) is set for a deep recession in 2020.
The covid-19 pandemic effect has increased health, travel, and business disruption claims. These claims, coupled with underwriters’ inability to write risks in Q2 and the tapered household income should amplify the sector’s expected recession.
In a bid to rid the sector of these known drags, the National Insurance Commission (NAICOM), the primary regulator in the industry launched its recapitalization exercise in May 2019. The plan’s proponents intend to improve the industry’s minimum paid-up capital in each business segment, thereby solving premium flight issues that have continued to plague the industry.
Following the lingering impact of coronavirus, the deadline was adjusted from June 2020 to December 2020 to implement Phase I of the project while the deadline for the second phase’s performance was moved to September 2021. Some players have called for an extension of the regulator’s deadline given the impact of Covid-19 on their businesses.
However, most of the industry’s bellwethers have entirely shored-up their minimum paid-up capital to the required level. In our view, firms that are yet to meet the required capital threshold may likely lose out on the opportunities available on the supply side of the market.
Furthermore, for the industry to thrive, the regulators may also need to deepen micro insurers’ activities in the Nigerian economy.
CSL Stockbrokers Limited, Lagos (CSLS) is a wholly owned subsidiary of FCMB Group Plc and is regulated by the Securities and Exchange Commission, Nigeria. CSLS is a member of the Nigerian Stock Exchange.
Buhari orders MDAs to grant FIRS access to their systems
Buhari has directed all government agencies and business enterprises to grant FIRS access to their systems for a seamless connection.
President Muhammadu Buhari has announced that he has directed all government agencies to grant the Federal Inland Revenue Service, FIRS, access to its system for effective service delivery.
The President also stated that the FIRS fully deploying automation is in line with international best practices.
This was disclosed by the President in a social media statement on Thursday.
“We must use technology to plug all revenue loopholes,” Buhari said.
“To this end, I have directed all government agencies and business enterprises to grant FIRS access to their systems for seamless connection. FIRS must fully deploy automation, in line with international best practices,” he added.
What you should know
- Nairametrics reported that the FIRS announced that it generated N4,952,243,711,728.37 as tax revenue in the 2020 fiscal year. This is about 98% of the tax target of N5.076 trillion that was set for the FIRS by the Federal Government.
- The FIRS also announced the creation of 35 new Tax Audit Units to combat illicit financial flow across the country.