In my last piece, I talked about why you should measure the performance of your investments. I also promised to talk about how you can calculate the performance measurement metrics needed to appraise your investments.
The good thing about investment performance measurement is that it works across asset classes and strategies. It can be used for fixed income securities as much as it can be used for equities or mutual funds.
Investment performance measurement begins with the valuation of the assets within a portfolio. But as an investor, investing through a fund manager, the responsibility of valuing the assets within your portfolio shifts to the fund manager. For the “do it yourself” (DIY) investor, the valuation of the asset within your portfolio will derive from the market prices of those assets.
For example, if you have a portfolio that holds 100 shares of Access Bank, 250 shares of Dangote Cement and 50 shares of Nestle, the value of your portfolio will be the sum (sum-product) of the number of shares in each equity multiplied by the price as at the date of the valuation.
What is Return and how is it calculated
The starting point for performance measurement is the calculation of return. Return is the benefit you received from an investment over a period of time. Return or gain is the difference between the current value of your investment and the original investment or the value as at the last calculation period.
Gain or Loss= Current Value-Investment Made
Rate of return is the gain or loss expressed as a percentage of the original investment or prior investment value
For example, assuming you invested N200 in ARM Aggressive fund in January, and by January 31, you received your investment statement that says that your investment in ARM Aggressive fund was N260, it means that your return or gain or benefit for the month of January was N60, calculated as N260 less N200. The rate of return, therefore, is 60 divided by 200, that is .3 which, when multiplied by 100, gives you a rate of return of 30%.
Speaking the language of the market, the rate of return can be calculated as the difference between the ending market value and the beginning market value divided by the beginning market value. This difference accounts for changes in the price or value of the portfolio or asset over a period of time, otherwise called unrealized gain or loss.
Mathematically speaking, the numerator of the rate of return calculation is the unrealized gain or loss, that is the difference between the ending market value and the beginning market value. The denominator is the money you invested (or the money at risk) or principal amount. It is good to note that the principal amount invested is used only in the first period, but in subsequent periods, the denominator becomes the ending market value in the previous period.
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For example, if you are measuring the rate of return for June, having measured that of May, the denominator becomes your May ending market value. In most cases, the market value of investments account for changes in the prices of the investments, giving you the unrealized gains or losses, it does not capture the dividends or interests that have been paid or accrued (accumulated) on the portfolio or asset.
Therefore, to get a more realistic calculation of the rate of return, you have to factor in the dividends or interests. In that case, the rate of return will be ending market value plus ending accrued income divided by beginning market value. This is what they call total return, in investment language.
In the above, MVE represents ending market value while EAI represents ending accrued income, while MVB represents beginning market value, which is actually the ending value of the previous period. For example, suppose you have invested N20,000 in a carefully-chosen investment portfolio. Exactly 1 year from the time of initial investment, the investment portfolio gives you N200 of cash dividends, and the investment portfolio has a market value of N22,000 at the end of the current period, what is your rate of return?
Your rate of return is R is (200 + 22,000 /20,000)-1
[KEEP READING: How To Use Return On Assets As A Great Investment Tool]
Effects of Income Reinvestment: Investment performance measurement gets more complicated and more complex when incomes or dividends get reinvested because when that happens, not only do the income or dividends form part of the numerator in the calculation, they become part of the denominator as well. In that case, the rate of return becomes;
Where BAI represents beginning accrued income, in addition to the other variables already defined earlier. For example, suppose you have invested N20,000 in a carefully-chosen investment portfolio. Exactly 1 year from the time of initial investment, the investment portfolio gives you N200 of cash dividends which you reinvested in the portfolio, and the investment portfolio has a market value of N22,000 at the end of the current period, what is your rate of return?
Your rate of return is (200 + 22,000 /20,000+200)-1
Effects of Cashflows
It is not only the reinvestment of dividends or interests that complicate the calculation of investment performance or rate of return. It even gets further more complex and complicated when you have additional investments or subscriptions and when you partially redeem or sale some of your investments. In investment performance measurement, those activities are called cashflows.
So, the cashflows affect investment performance measurement because you need to account for them, not only due to their numerical effect but also due to their timing effect. The effect of a redemption done at the beginning of the month differs from the effect of such redemption done in the middle of the month for investment performance measurement purposes. When there are cash flows, gain or loss is calculated as follows:
In that case, the rate of return becomes
For example, assume your investment had a beginning MV of N180.00 in a fund and you invested N20 at the beginning of the year and by the end of the year your investor statement says that the market value of your investment is N260.00, what is your rate of return? Your rate of return will be 20% calculated as
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Timing of Cash flows
One drawback of basic return on investment calculation (ROI) is that it does not account for the timing of cash flows. Returns differ depending on whether cash inflows happen at the end or beginning of the period. Returns are higher when cash inflows happen at the end of the period.
Returns are lower when cash inflows happen at the beginning of the period. For example, assume your investment had a beginning MV of N180.00 in a fund and you invested N20 at the end of the year and by the end of the year, your investor statement says that the market value of your investment is N260.00. What is your rate of return?
The rate of return will be 33.33% calculated as
Because the contribution was made at the end, it was not part of the value risked and because the contribution was made at the end, the rate of return was higher than previously calculated.
More and More Complications Abide
There are a lot more complications and complexities in investment performance calculation as you get deeper and more granular, as you try to calculate time-weighted and money-weighted returns and even dive into the areas that angels in investment performance calculation dread to walk, the area of attribution analysis. I will, therefore, end this piece here, without introducing further complications. Those who need help in measuring the performance of their investments and for corporate organizations that want to expose their staff to a more robust understanding of investment performance measurement, they can get in touch with me.
6 things you must not do with your money
Money can go as fast as it comes, but you might just get to keep it for a long time if you follow these tips.
Coming across this, you probably thought to yourself “what an interesting topic, I wonder what it has to say”. Well, we are right there with you. There are a lot of things you shouldn’t do with your money and even without reading further, you can probably outline about 20 things, (go ahead if you’d like to).
Trust me you’d have fun doing that because it was quite fun coming up with this list and we’d like to present to you the top 6 things we believe you must not do with your money. Have a fun read.
DO NOT BE UNINTENTIONAL WITH YOUR MONEY
Intentional living is important and it is something that has caught on over the years. To be intentional means to be deliberate in your actions and decisions. Basically, what you must understand from this is that you should not be impulsive with your money, whether in your spending, savings, and investment decisions, you must be deliberate. There is a popular saying that goes “failure to plan is planning to fail”.
It is necessary to always have a plan/budget for your money. Never leave your money to chance. Be intentional, be deliberate, and do not be passive with your money plans. To get started, you can focus on three steps; have a vision, create a plan, set limits. You can decide to be intentional with your impulse buying as well. When you create a plan and set limits and you do not go over that limit, even when you decide to splurge, you would still be on track to achieving your goals.
DO NOT MAKE LARGE PURCHASES WITHOUT CONSIDERING THE FULL COST
Part of being intentional with your money is to avoid large purchases if possible. Things like buying a car or land/homeownership should not be taken lightly. Even if you can afford the down-payment at that time, you have to consider the other charges and fees attached. If you can meet up with maintenance and servicing then, by all means, go ahead. Otherwise, it’d be best to review that decision. One way to achieve such purchase though, if your current earnings aren’t sufficient to support an extravagant purchase is to have a savings or budget plan for it.
Even if you cannot afford a financial advisor, there is a good number of mobile apps that would help you make such a savings plan. If you are the type of person that whenever you come upon ‘windfall’ or unexpected income, you’re already thinking of how to spend it extravagantly, you need to have a change of perspective. Before you think of buying that private jet or getting that car, you need to ask yourself if you are fully capable of maintaining it. Making rash purchase decisions can lead to regrets later.
DO NOT CASH YOUR PAYCHECK RIGHT AWAY
With the advancement in technology, most employees have the option to have their earnings paid directly into their bank accounts, rather than collecting cheques or cash. But no matter the form you collect your money; you must make provision for part of that money to be saved. Do not spend it immediately. You can automate payments such that a percentage of your monthly income goes directly into your savings account.
This helps to avoid the temptation of dipping into that fund because, “if you don’t see it, you won’t spend it”. Some companies provide retirement savings plans for their employees, a system whereby a portion of their salaries are deducted and paid directly into their retirement account. One such plan is the 401k, of which the Nigerian alternative is the Nigerian Pension Scheme, governed by the National Pension Committee (PENCOM).
(READ MORE: Cashless goes nationwide)
DO NOT PUT ALL YOUR MONEY IN ILLIQUID INVESTMENTS
While investments are fun, and a good way to build wealth, it is important to diversify and have variety. Remember the saying, “do not put all your eggs in one basket?”. The difference between liquid and illiquid investments is simply this; the ability to exchange something for cash. So the rate of liquidity is determined by how easily an investment can be converted to cash. Do not tie up your money by investing in illiquid investments. Your investment portfolio should be diversified.
DO NOT SHOP EMOTIONALLY
The fact that we are biological beings does not mean we should not make logical decisions. Do not fall prey to ‘retail therapy’. Retail therapy is a term that is used to describe the action of shopping to improve one’s mood. It is also referred to as “comfort buys”, often acquainted with individuals who buy during periods of depression and stress. You are allowed to get emotional and you are also allowed to deal with that emotion, but talking to a sales representative or clerk just to make you feel better is not healthy.
Their job is to make sales, not your welfare. This is not intended to paint anyone in any sort of way but rather, to educate you. Instead of making that trip to the store or browsing that online catalogue, it would be better for you to call up a trusted friend or family member and talk with them. You’ll thank me for it.
DO NOT SIGN A CONTRACT YOU DO NOT FULLY UNDERSTAND
A contract is an agreement between two people that is legally binding. Four essential elements that make a document legally binding are; an offer, an acceptance, an intention to form a partnership, and a consideration that usually involves money. It can be oral or written. When it is oral unless recorded, there is no solid proof that an agreement was made, but, once it is written there is enough proof.
So before you go ahead and sign that piece of document, you must be fully aware of the terms and conditions of your agreement. Yes, a contract may, however, be considered invalid for specific reasons, but the bottom line is that you should avoid any situation that would put you in any money problem. It is more rewarding to get professional advice than implicate yourself unknowingly.
With all that’s been said, the crux of the matter is that you must be intentional with your money. Only then, can you plan, only then can you learn from your mistake, only then can you track your money movements, be deliberate, make decisions and take actions with a purpose. Develop a relationship with it (a healthy one of course), get to know your money, go on money dates and your financial health will bless you for it.
FG says 174,574 successfully register for N75 billion MSME survival fund in 48 hours
174,574 persons have successfully registered for schemes under the Nigeria Economic Sustainability Plan.
The Federal Government has disclosed that a total of 174,574 persons successfully registered for the N75bn National MSME Survival Fund and the Guaranteed Off-take Stimulus schemes under the Nigeria Economic Sustainability Plan, within 48 hours.
The disclosure was made by the Minister of Industry, Trade and Investment, Ambassador Mariam Katagum, during a media briefing on the update of the schemes, on Thursday, September 24, 2020.
Mariam Katagum, in her statement, said: “As at 8.30 am this (Thursday) morning, total successful registrations stood at 174,574 with the following states having the highest applications as follows: Kano, 19,895; Kaduna, 13,575; Lagos, 13,640; Katsina: 8,383; Federal Capital Territory, 8,085.”
She stated that the registration for the MSME Survival Fund commenced on September 21, 2020, at 11 pm, and within 24 hours, approximately 138,000 individuals had logged on, created profiles and completed the first stage of registration with Kano, Kaduna and Lagos as lead states.
Going further, Katagum said, “All successful applicants received SMS and email verification with a list of requirements for the second stage of application which would commence on October 1, 2020. Applicants will be required to upload details supporting their applications which will be verified and if successful, approved for disbursements.”
The minister further disclosed the states that recorded the highest numbers of applications within the first 24 hours of registration; these are Kano, which recorded 16,880: Kaduna, 11,438; Lagos, 10, 530; Katsina, 7,354; and Bauchi, 6,622.
Explore the Nairametrics Research Website for Economic and Financial Data
She also stated that registration for other tracks would start next with the hospitality industry coming on September 25, 2020, by 10 am; payroll support (others), September 28, 2020, 10 am; while artisan/transport grants would start on October 1, 2020.
Nairametrics had two days ago reported the opening of the portal for its N75 billion Micro, Small and Medium (MSMEs) Survival Fund and Guaranteed Off-take schemes with effect from 10 pm on Monday, September 21, 2020.
These two MSMEs initiatives namely MSMEs Survival Fund with payroll support track and the Guaranteed Offtake Scheme which are at the core of FG’s N2.3 stimulus package in the Economic Sustainability Plan, were introduced by it as part of the efforts to help businesses overcome challenges posed by the Covid-19 pandemic.
Hon. Minister of State (@TradeInvestNG ),Amb. Mariam Yalwaji Katagum briefed members of the Media on update of the N75 billion National MSMEs Survival Fund (@SurvivalFund_ng ) and the Guaranteed Off-take Schemes under the Nigeria Economic Sustainability Plan (NESP) today. pic.twitter.com/r6qiFu79Gj
— FMITI Nigeria (@TradeInvestNG) September 24, 2020
How to register for FG’s N75 billion MSME survival funds
FG released guidelines to access the N75 billion MSME Survival Fund.
The Federal Government (FG) has released the guidelines to access the N75 billion Micro, Small and Medium Enterprises (MSME) Survival Fund and Support Initiatives, which took effect from September 21, 2020.
The scheme, which is the core of the N2.3 trillion stimulus package of the Nigerian Economic Sustainability Plan includes the N60 billion MSMEs Survival Fund and the N15 billion Guaranteed Offtake Schemes.
This disclosure was made in an official statement by the Federal Government through a series of tweet posts on its official Twitter handle.
The statement from FG read, “As the portal for the registration of prospective beneficiaries of Survival Fund opens, interested Nigerians in the Payroll Support Scheme are to note that the site will be open from 10 pm Monday, September 21, 2020.”
The statement says that the registration for the payroll support will start with the educational institutions at 10 pm Monday, September 21, 2020, and will be followed by businesses in the hospitality industry by 12am Friday, September 25, 2020.
The portal will also open for other categories of small businesses from 12am, Monday, September 28, 2020. It should be noted that the scheduling of the registration for prospective beneficiaries is to ensure that the process is seamless and hitch-free. The registration of every sector is to continue until Thursday, October 15, 2020.
To register for this initiative, the Federal Government has also provided a portal for entry. Potential beneficiaries are advised to log on to https://survivalfund.ng to complete their registration.
As part of the registration process, the beneficiaries are expected to provide personal registration details, activate their account, register their organization after they have successfully activated their account.
Corporate Affairs Commission (CAC) Number, Bank Verification Number (BVN), SMEDAN Number, a Tax ID (optional) and the organization’s bank account details will be needed.
Completing the Payroll Support Registration, beneficiaries’ first name, last name, email, mobile number and Password will be required. Also, their Date of Birth, residential address and residential Local Government Area will also be provided.
These 2 MSMEs initiatives namely MSMEs Survival Fund with payroll support track and the Guaranteed Offtake Scheme were introduced by the FG as part of the efforts to support businesses overcome challenges posed by the Covid-19 pandemic.
The MSMEs Survival Fund scheme is a conditional grant to support vulnerable micro and small enterprises in meeting their payroll obligations and safeguard jobs in the MSMEs sector. The scheme is expected to save at least 1.3 million jobs across the country and specifically impact on over 35,000 individuals per state.
The scheme will be implemented over an initial period of 3 months and is targeted at employees of MSMEs and self-employed individuals with 45% for female business participation and 5% for special needs participation
The Guaranteed Off Take Stimulus Scheme is expected to perfect and sustain the income of vulnerable micro and small enterprises from the economic disruptions of the Covid-19 pandemic through the implementation of various initiatives aimed at boosting the production capacities of small businesses as well as the provision of grants.
The duration is also for an initial period of 3 months and is targeted at micro and small businesses registered in Nigeria.
Registration for #PayrollSupport will start with educational institutions at 10pm on Monday Sept 21, 2020, and will be followed by businesses in the hospitality industry on Friday September 25 beginning from 12am.
— Government of Nigeria (@NigeriaGov) September 21, 2020