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Why you should measure the performance of your investments

Investment performance is best understood after understanding what an investment is. Simply put, investment is the initial forfeiture of something of value, now, in exchange for the anticipated benefit of getting back more than what was forfeited.

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The paradox of lower yield but higher risk, investments, how to measure the performance of your investments., Here are ways to ask family and friends to fund your business - PART 2 , An introduction to repos

There is a jingle in one of the television stations in the USA that reminds me, at the end of each month or quarter and year, to find out where my investments are. The Jingle goes like this, “It is 10 pm; do you know where your children are?” That question gets asked every night, seconds before the 10 pm local news. Even comedians, musicians and movie producers/writers have used and continue to use that question in their lines of comedy, music or movie to emphasize one need or the other.

Actually, that question became important and needful following the urban unrest and rioting in the USA in the summer of 1967. It was the then director of Air Promotions at the New York’s WNEW-TV that coined that phrase to remind parents to keep an eye on their kids by keeping them off the streets.  Since 1967, times have changed. Yet, that phrase is as important and needful in 2019 as it was in 1967.

Measuring your investments

Indeed, nowhere is this question most important than in investment performance measurement, where investors should be asked, “It is the end of the month, (the quarter or the year), do you know where your investments are?” The phrase can be used as often as possible, as a reminder to check investment performance on a weekly, monthly, quarterly or yearly frequency.

What is investment performance?

Investment performance is best understood after understanding what an investment is. Simply put, investment is the initial forfeiture of something of value, now, in exchange for the anticipated benefit of getting back more than what was forfeited. The difference between what was forfeited or put in, and what is gotten back, (the anticipated benefit), is the return on investment.

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Performance measurement, therefore, is the technique or method by which an investor quantifies how much return he or she earned. Depending on the extent, it may also include quantification of how the return was made (attribution analysis) and what risks were taken to generate such returns.

[YOU SHOULD READ THIS: A guide to how Mutual Funds work in Nigeria]

Why Measure Investment Performance?

Investors invest with an objective and strategy. So there is need to purse and check if the objectives are being realised and also if the strategy designed for the achievement of the objectives is working. Therefore, the need for investment performance measurement arises so as to-

Monitor Progress: Investment performance measurement helps investors to monitor the process towards set investment objectives with a view to either modify the objectives or modify the strategies to get to the objectives. For example, if you are saving or investing for your retirement, investment performance measurement will help you compare your returns against the projected future asset value required for your retirement. If the rate at which you are saving and the return you are getting will not lead to the accumulation of sufficient amount at retirement, it then calls for either increasing your savings rate and/or changing your asset allocation or investment strategy.

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The potential cost of having an underfunded retirement asset makes investment performance measurement even more important. It helps you answer the quest, “am I there yet”, if not, “how far away am I”, if too far from your investment destination, it helps to answer the question, “will I get there at the rate I am going”.

[READ FURTHER: This is the best Mutual Fund in Nigeria this year so far]

Asset Selection/Allocation: Investment, especially capital market investments, involves putting your money in different asset classes and types. Different assets have different characteristics and behave differently. Also, different assets yield different returns. Investment performance measurement, therefore, helps you to find out how much returns, different asset classes/types are making with a view to reallocating your assets or carrying out a rebalancing of your portfolio.

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It is always good for investors to use the proper savings, spending, and asset allocation strategies that will provide them with the highest probability of reaching their investment goals with an acceptable level of risk. Unfortunately, market dynamics keep changing and as such, the decision on asset allocation needs to change in line with changing market conditions.

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Investment performance measurement helps to find out what needs to be changed with respect to asset allocation strategies. For example, if you have a portfolio that is 80% invested in fixed income securities and 20% in equities because interest rates were over the roof, and over time, yields begin to fall while equity markets begin to pick up, you will be able to find out if the return you are making from your fixed income securities are lagging the return from equities through performance measurement, and then, you can decide to reallocate slightly away from fixed income to equities, maybe in a 50-50 or 60-40 asset allocation ratio.

Manager Selection: Due to the complexities in stock market investments and the complex nature of the instruments traded therein, most stock market investments are not on DIY (do it yourself) basis. Many investors invest through fund managers. Investors should select fund managers with a proven track record of successfully managing funds with positive returns.

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Performance measurement provides the data needed to uncover managers’ track records. It does not end there, though, because, once you have selected a manager based on the track records uncovered by investment performance measurement, among other selection criteria, the managers’ performance needs to be reviewed and measure in an ongoing basis so as to know whether to retain such a manager or to fire him, investment performance measurement acts as a tool for periodic manager assessment.

Investment performance measurement comes very handy if an investor is investing with more than one fund manager as such measurement could provide a good yardstick for comparing between or among fund managers, especially when an investor wants to allocate more funds to fund managers.

READ THIS UP: How will 2019 look for you as an investor?

Past Performance does not Guarantee Future Performance

There has always been the phrase, “past performance does not guarantee future performance”, agreed, performance measurement is backward looking but the results derived from such measurement help to inform and shape investors’ forward-looking decisions.

But is not that simple…

Investment performance measurement is not as easy as that but it is an important tool in the hands of investors. It is not easy because it requires data and analysis, which may be quite involved if you want to dig deeper and if the data are not readily available. In my next article, I will detail the “how” of investment performance measurement because this piece has dwelt only on the “why” of investment performance measurement.

Uchenna Ndimele is the President of Quantitative Financial Analytics Ltd. MutualfundsAfrica.com and mutualfundsnigeria.com (both Quantitative Financial Analytics company website) is a leader in supplying mutual fund information, analysis, and commentary on African mutual funds. We provide reliable fund data; and ratings information that will add value to fund managers, the media, individual investors and investment clubs.

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Personal Finance

How to fund capital projects debt-free with high interest yielding investments

These are the four things you need to fund your capital projects debt-free.

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The one thing that will reveal to you the gaps in your current financial situation is capital projects. A capital project is any project that is beyond your current and future financial capacity to execute. For most people, capital projects lead them into debt. Debt and Capital projects go hand in hand because the income of most people is still struggling to meet basic bills. And in instances where income is high, expenses overwhelm income. So whether you are a high-income earner or a low-income earner, the chances are high that you will struggle to fund certain capital projects in your life.

To fund capital projects, you need four things to be working simultaneously in your life. The First thing is your ability to earn high incomes. The second thing is your ability to keep a major part of that income. The third thing is your ability to grow that income without losing it. And the fourth thing is your ability to build solid Passive Income that exceeds your current Active Income. These are the four things you need to fund capital projects debt-free. Unfortunately, only a few people know how to do all four things correctly. Certain people hardly thrive in one area. But, if funding capital projects debt free is important to you. You must know how to do all four things well or surround yourself with people who can help you.

Funding a capital project debt-free is a difficult task to achieve if all you have is a modest income and meager savings. The lower your income the more things become capital projects to you. This means that what is a capital project for you may not be capital projects for another person. To help us unify our definition of capital projects. Let us use an example of capital projects that we all agree is the most difficult to fund debt-free. This example is Homeownership.

Read Also: If you experience these signs then know your salary is not enough

Homeownership is a type of capital project and one of the most popular capital projects because many people want to achieve it. By the time you are an independent adult, the desire for homeownership is already burning inside of you. This desire comes from parent influences, external pressure, and the frustration of paying rent to a homeowner. Owning a home is thus one of the most universally accepted capital projects with a global desire. It is also the most expensive capital project to fund. Yet despite its expansiveness, most people want to achieve it. Every year millions of people attempt to climb the homeownership ladder. A few of them make it. Many of them are buried in debt. And many more fail to achieve it. This is because the desire for homeownership does not automatically translate to owning a home. And here is why.

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Many people are trying to own a home on the fragile back of a low income and low savings. The truth is one income, and low savings cannot fund the homeownership project. To fund your dream home you need multiple streams of income and big portion savings. Second, you need to overcome the temptation of owning a home too soon. Many people rush to own a remote and low budget home. A home where people struggle to come to due to its distance and neighborhood. Owning a home is not about being the first to own a crappy home. It is about being the first to own the dream home in a dream location and to do it debt-free. Attempting to own a home too soon is the reason most people end up with crappy homes that are way below their league. Homeownership is best achieved at a time when you are most financially capable to fund it. This is not to say you just sit and do nothing before then. But to say that you use that time to build the solid cash reserves you need to fund your dream home.

So how then do you fund your dream home?

To fund your dream home there are three paths you can take.

Read Also: Still on the FG’s $22 billion loan

The first path is the Loan path. This is where you borrow money and end up in debt. The second path is the bootstrap savings path. This is where you painstakingly save your way to homeownership. Only a few people ever achieve this. The third and most effective path is to create your own interest-free solid cash reserves and then use them to fund your dream home. This is the Path we will be dwelling on in this article.

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So how then do you create your own interest-free cash reserves?

To create your own interest-free cash reserves there are four things you must do.

The First is to develop Income security skills. The second thing is to leverage a complementary Side Hustle. The third thing is to establish a Financial defense System. And the fourth thing is to use a multipurpose, high interest yielding investment vehicle to build your cash reserves. Below I explain each of these points in detail.

Develop Income Security Skills

There is only one way to secure your income in the world. This way is not to secure your job. But to develop high-income skills that preserve your ability to earn high incomes. The truth is there is no job security out there and since homeownership is a long-term process. You need certain skills to guarantee a continuous flow of cash. There are three income security skills that can help you achieve this. The first is problem-solving or creativity skill. The second is Relationship building or Networking skills. And the third is marketing and sales skills. These are the three skills you need to secure your homeownership income. And ensure you are never recycled back into the pool of broke people. Developing income security skills is thus critical for funding your dream home. The key to success here is to invest in developing and refining these skills. And to put them to practice and perfect them. If you need help developing these skills or practicing and perfecting them send an email to [email protected]

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Get a Complimentary High Income Side Hustles

No homeownership project can be funded debt-free from a single meager source of income. Thus to fund your dream home you have to grow your main income and add another source of income to it. To grow your main income you need to rise to positions that have a direct impact on profit and revenue. Then you need to find a side hustle that complements your main income.

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The problem is most people do not know the side hustles that complements their main income. They are also concerned about whether or not they will like this side hustle or make the desired income out of it.

The key to identifying the side hustle that is right for you is to consider these three things. The first is your interest. Can you do and promote this side hustle easily? The second is the income speed. How soon before this side hustle produces the kind of income that you desire. And the third is the workload and time requirement. How much time do you have to invest to generate the kind of income that you desire? Adding a side hustle that increases workload. Consumes time. Reduces job efficiency and drains current income is a mistake. The key here is to identify side hustles that complements your main income. And ensure that your side hustle has the high-income capacity and is aligned with your area of interests

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Read Also: How PR can transform the future and profitability of a business – CEO, Mosron Communications

To find this kind of side hustle you need to identify your current area of interest. So if you are reading this article right now. Chances are high that you are interested in making more money and funding capital projects debt-free. If you can find other people within your circle who are also interested in making more money. And funding capital projects. And if you and these people are willing to invest in products and services that can help you. You can make a high-income side hustle from it. Granted that the product or service you promote solves a high-income problem. Thus to earn high incomes you need to choose side hustles that can pay you high income. Getting rich through a side hustle is thus about first solving your own problems. And then showing other people how you can help them solve the same problem. This is the fastest way to get on the High-income side hustle ladder. Every other way takes time, produce low income, and increases your workload. To fund your dream home debt-free. You must choose side hustles that require you to work less earn more and produce income in less time. This is the fastest way to fund your dream home.

Build Your Own Personal Financial Defense System

The worse way to try and fund a capital project such as homeownership is to do it without a financial defense system in place. A financial defense system is a system that can provide you income in the presence or absence of a Job. This is important because homeownership is a long-term project. And you need the continuous flow of income to survive.

So how do you build a solid financial defense system that protects you throughout the homeownership process?

To build a solid financial defense system there are four things you must do. The first is to hit a big portion savings target. The second is to make your savings failure-proof. The third thing is to shield your savings from financial distractions. And the fourth is to spend in the direction of Freedom.

Read Also: What SMEs must do to survive the Coronavirus outbreak

  1. Achieve a Big Portion Savings Target
    Saving is a critical part of every investing activity. So if funding your dream home is important to you. You must save a significant part of your income. To save 50% of your income for example there are two things you can do. The first is to increase your income, to the point where it overwhelms your expenses. To do this you need high-income skills and high-income side hustles. The second thing is to reduce your expenses to the point it becomes lower than your savings. The fastest and most effective way to do this is to focus on increasing savings and not reducing expenses. And there are two ways to increase savings. The first is to increase savings by 1% every month until you hit a big portion savings target. Your expenses will adjust accordingly. The second way is to deduct a big portion of your income as savings from the source. And figure out how to live on what is left. If you survive after a month it means you can live on what is left. These are the two smart ways to increase your savings and invariably adjust your expenses.
  2. Make savings Failure Proof
    One of the abilities you must have if you want to fund your dream home debt-free is the ability to consistently save without skipping it. Skipping savings is postponing your financial freedom and homeownership dream. Thus if you want to save without fail, you must make your savings failure-proof. To make savings failure proof you need to deduct savings from the source. Use compulsory savings vehicles such as group contributions or standing orders. And be accountable to someone you trust and respect.
  3. Shield savings from Financial Distractions
    The biggest killer of all the savings in the world is financial distractions. The inability to stop unplanned events and people from stealing your savings. Financial distraction derails your saving from its original purpose. And this elongates your ability to own your own home. To own your own home you must shield your savings from financial distractions. To shield savings from distractions you need certain protective investment vehicles. You also need to assign a purpose to every idle fund. And to work with a mentor to keep idle funds tied up for the right purpose. This is the only way to fund your dream home in record time and without delays.
  4. Spend in the direction of Freedom
    There are two ways to spend money. The first is to spend in the direction of freedom and the second is to spend in the direction of poverty. To Fund a dream home debt-free you must spend in the direction of freedom. When you spend in ways that use up big portions of your income. You are facing the direction of poverty. And when you spend in ways that save up bigger portions of your income You are facing the direction of freedom. The key here is to save more than you spend and spend in the direction of where you want to go.

These are the four things to do. To build a solid Financial defense system that supports you throughout the homeownership process.

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Choose a Multi-Purpose High-Interest Yielding Investment Vehicle

There are many investment vehicles in the world. But the most suited and effective investment vehicle. For funding capital projects is the multi-purpose high-interest yielding long-term investment vehicle. This is a special purpose vehicle that has been designed to fund capital projects. It is a multi-purpose vehicle because it can fund many capital projects within the same time frame. It is also safe and high interest yielding because it is a long-term investment vehicle. So if you are considering owning a home debt-free at some time in the future. This is the best investment vehicle for you. The key to investing is to never lose money, especially when building towards a capital project.. Once you choose the right investment vehicles that preserve your investment. You will fund your dream home in no time.

Read Also: FG to inject over N198 billion on capital projects in power sector in 2021

The truth is you will remain the same person year after year except for your ability to make more money. Your ability to keep more money. And your ability to grow that money without losing it. The more you master these three abilities the richer you become. And the easier it will be to fund your dream home. There is nothing as powerful as having zero cash worries when you want to fund your dream home.

If you want to own your own home, make extra income, or fund capital projects debt free we can help you. Send an email to [email protected]


About author

Grace Agada is The Senior Financial Happiness Director @ Create Solid Wealth. She is an author, and column contributor in six national newspapers. She is a contributor at BellaNaija, Nairametrics and Proshare and she is on a mission to help working-class professionals and CEOs become more financially successful. To learn more about Grace and how she can help you send an email to [email protected]

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Business

The FG in partnership with the private sector will continue to support MSMEs – Osinbajo

Osinbajo has stated that the FG in partnership with the private sector would continue to provide interventions to boost the growth of small businesses.

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Solar, FG to slash import duties on tractors, buses, others in 2020 Finance Bill, Nigeria will not issue Eurobonds, says Vice President Yemi Osinbajo, FG guarantees mortgage loan to low income buyers at low interest rate, FG inaugurates gold refinery project in a landmark event

Nigeria’s Vice-president Prof. Yemi Osinbajo during an MSME stakeholders’ meeting, disclosed that the Federal Government in partnership with the private sector would continue to provide interventions to boost the growth of small businesses across the country.

According to a press statement issued by Laolu Akande, the VP made this statement on Monday at the first meeting of MSMEs stakeholders for the year 2021.

Prof. Osinbajo said the Government would continue to support innovation and interventions to deepen the involvement of new and existing MSMEs in the nation, this he said would help to improve the economy and create more employment opportunities for Nigerians.

He stressed further that the implementation of the Economic Sustainability Plan Survival Funds has sent positive economic signals. In a bid to complement the gains in this space, the Government needs to scale up interventions in the MSMEs sector.

In this vein, Osinbajo urged stakeholders in the public and private sectors at the virtual meeting to be innovative in the interventions planned for small businesses across the country, so as to consolidate on the gains recorded in the MSMEs space in the past few years.

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What they are saying

Prof. Yemi Osinbajo, during the MSME stakeholders’ meeting, said:

“We must continue to be innovative in the interventions that we plan for MSMEs because small businesses are the engines of growth of any economy, in the areas of wealth creation and employment opportunities, MSMEs are very important.”

Continuing, Prof. Osinbajo said:

“We really have to think out of the box in our engagements going forward. We need to change the way we do many things, we need to look for ways of multiplying our efforts because the challenges in this space are greater than what we have been able to achieve so far. Of course, we have done a lot, but looking at the numbers in need, you will find out that there is a lot more to be done.”

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What you should know

  • The Federal Government’s MSMEs Survival Fund grant scheme, which includes Payroll Support, Artisans and Transport support tracks, is a component under the Nigerian Economic Sustainability Plan, NESP.
  • The Survival Fund scheme was designed to cushion the economic effects of the COVID-19 pandemic especially on the most vulnerable small businesses, is a conditional grant to support vulnerable MSMEs in meeting their payroll obligations and safeguard jobs in the MSMEs sector.
  • The scheme is estimated to save not less than 1.3 million jobs across the country. However, 283,023 Nigerians employed by MSMEs across the country have benefited from the Payroll Support Scheme. This leaves millions of Nigerians out of the consideration of the scheme.

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MSME

283,023 Nigerians employed by MSMEs have benefited from FG Payroll Support Scheme

The FG has revealed that over 200,000 persons have so far benefited from its Payroll Support Program.

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Nigerian MSMEs suffer negative impact of COVID-19

The Federal Government of Nigeria has disclosed that 283,032 Nigerians employed by MSMEs across the country have so far benefited from the Payroll Support Scheme of the Federal Government.

This disclosure was made in a tweet shared via FG Survival Fund’s official Twitter account.

What you should know

  • The Payroll Support Program by FG under the Survival Fund initiative was created to provide an adequate buffer against the impact of the COVID-19 on the stream of income of MSMEs.
  • This, however, is an offshoot of the Survival Fund initiative, established to support and protect small businesses from potential vulnerabilities brought about by the COVID-19 pandemic.
  • In line with the mandate of the programme, the government will support MSMEs with staff salaries for 3 months.
  • It is important to note that the COVID-19 pandemic and other regulatory actions of the Federal Government affected the core segments of SMEs, as well as the revenue and income vehicles of Small businesses in Nigeria.
  • According to a survey by NBS, it became public knowledge that the total number of Micro, Small and Medium Enterprises in the country was about 41.5 million, as of December 2017, with significant employment contribution running to millions.
  • In the light of this, it is plausible to say that the Payroll support programme is not inclusive enough, as the recent move by FG to support MSMEs leaves millions of MSMEs and their employees out of the radar.

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