Not too long ago, I had an encounter with a retired medical doctor who used to be a professor at the University Teaching Hospital Ibadan in Nigeria, and she spoke to me about the need to eat according to my blood type. Her argument and advice were taken from the playbook of the idea developed and created by naturopath, Peter J D’Adamo.
According to D’Adamo, the foods you eat react chemically with your blood type. This, according to him, means that if you eat food designed for your blood type, your body will digest such food more efficiently for better results: more energy, weight loss, and disease prevention, among others.
In the same way that D’Adamo has theorized on eating according to ones’ blood type, investment and finance experts have opined that investors should invest according to their risk chemistry— their risk tolerance and risk appetite, to be specific.
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What is Risk Tolerance and Appetite?
The essence of advocating that people should invest according to their risk appetite and tolerance is because people react differently to risk and as a result, a portfolio that is good for investor A may not necessarily be good for Investor B. While some investors or people are always willing to accept risk, others are always willing to reject it.
Risk tolerance is the degree or extent of variability in investment returns that an investor is willing to withstand. In the same way, risk appetite is the amount of risk that an investor is willing to accept before putting in place measures to mitigate or reduce investment risks.
While those that are willing to accept risk are said to be risk-tolerant or risk lovers, those with the wiliness to reject risk are the risk averters or risk haters, with those in the middle being classified as the risk indifferent people. Those that are risk-tolerant tend to be aggressive, while those risk haters are usually conservative investors. The reason why some people are more willing than others to take risks can be associated to their biological makeup, upbringing and other life experiences. In most cases, risk tolerance and appetite is best discovered by completing financial risk assessment questionnaires which are usually available in major fund manager websites across the globe or by examining your reaction to certain financial and non-financial events.
Factors Affecting Risk Appetite and Tolerance
Unlike blood type that is easily ascertainable through blood work, risk appetite and tolerance are not so easy to uncover, because they depend on a whole lot of factors, from demographics to the level of education and everything in between.
Demographics: Studies and researches have shown that risk tolerance is associated with such things as wealth, education, age, gender, birth order, marital status, and occupation.
Gender: Your gender seems to affect your risk tolerance. While it has been known that men are more risk-tolerant than women, that trend seems to be changing gradually, as women are beginning to take on positions and activities that were hitherto considered reserved for men.
Age: In addition to your gender classification, your age tends to play a role in your investment risk chemistry because the older you get, the less you would love to take a risk. A study conducted by Investment Company Institute in the US found that the average ages of their low, moderate and high-risk tolerant investors were 60, 51 and 42 respectively.
In an article entitled “Understanding and Assessing Financial Risk Tolerance: A biological Perspective,” it was said that an enzyme, monoamine oxidase (MAO) is found in higher concentration among the risk-averse and that the level of MAO increases with age. So, this implies that the older you get, the more risk-averse you tend to become. The extent to which this holds is questionable though, given that some old gurus like Warren Buffet and George Soros still take major risks.
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Another reason the younger ones are more risk-loving is that they have more time to recover from investment losses than the older ones. That is why fund managers invest in fixed income instruments for the retirement ready investors and equities for the vibrant youths.
Marital Status: Your marital status also affects your investment risk disposition in that people who are single tend to have more risk appetite than married people. In addition to your marital status, the family make-up affects your disposition towards investment risk. A married but childless couple will be more daring, or more disposed towards risk than married couples with children, especially when the children are quite young.
That is why more people buy life insurance soon after they begin making babies. Your financial position in the family affects your risk tolerance level. The only breadwinner of the family will be less risk-tolerant than a breadwinner in a family where there is more than one person to depend on financially. In the same way, the number of dependents you have will affect your risk tolerance.
The more the people that depend on you, the less risk appetite you will have. Your salary level, occupation, level of education, number of years in your current job, your net worth, as well as your ownership of financial assets like retirement savings, insurance annuity, real estate, among others, will also affect your risk characteristics.
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Level of education: The more educated you are, the more investment risk you would like to take, all other things being equal. This is because the more educated you are, the more prospect you have to recover from investment losses.
In part two of this article, I will take a specific look at how risk lovers and haters react to different events.
Five things to consider before securing a loan
It is important to consider these five tips before securing a loan.
Financial security is when you know you do not have to worry about the basic needs of life. It also involves having the courage to comfortably withstand any emergency life throws your way.
The outbreak of COVID-19 was unexpected. Apart from the health implications it caused, the global economy has suffered greatly.
The outbreak of the virus resulted in job losses and business closure. The situation is so worse that even stable sources of income are no longer guaranteed.
As a result, many people have had to reduce their expenses, and the need to seek loans to enable sustainability or survival is on the rise.
While many may consider taking loans to meet their current needs, here are five (5) tips on what to consider before taking that step.
1. The lender
With different financial institutions willing to offer loans, it is crucial to find the right lender. At a critical time, such as this, securing a loan can come at significant risk and cost. It is, therefore, essential to get it from a source that will provide acceptable terms. It could be from a friend, family, community fund or a microfinance bank. Ensure you secure the loan from a lender willing to give you the best possible conditions and a well laid out repayment plan.
2. Do Your Homework
Research is key. Do your homework and be well informed about it. Ensure you have a realistic means of repayment. Look at the viability of the loan and ensure that you have a realistic chance of paying back on its due date.
3. Work Out Your Payment Plan
Many focus on planning on how to spend a loan and determining how much they need to secure. While this is essential, it is equally important to plan on how you will repay a loan. It would be best if you decide whether you will be paying on a weekly or monthly basis. These factors will guide you in choosing a loan with favourable payment terms to avoid unplanned costs.
4. Credit History
Having a good sense of your credit history is also very important. Know your cash flow and be sure of your income and expenses. Know the precision in terms of what you can get and when you can get it, so as to draw up an excellent and reasonable payback strategy.
5. Terms and Conditions
Ensure you read the fine print and understand the various terms and conditions of a loan before signing any legally binding documents, including a personal loan agreement. In some instances, you may find it difficult to understand certain things regarding the loan you are about to secure. Try as much as possible to clarify all doubts before taking the final decision.
Financial strain may not be the sole purpose of taking a loan. However, whatever the reason may be, it is crucial to consider these five tips before securing one.
10 things to adopt in your business to adjust to the new normal
As scary as the thought might be, the new normal might last for a very long time.
Towards the end of 2019, many businesses wrote their plans, strategies and goals for 2020 and were ready to dominate the market. However, the year did not start as many thought it would. The COVID-19 pandemic brought about new ways of doing things, which is now known as the ‘new normal’.
As scary as the thought might be, the new normal might last for a very long time. Therefore, businesses need to find a balance between what worked in the past and what needs to be done to adjust to the new normal. While some businesses were forced to shut down, many businesses had to change their strategy in order to adjust to the new normal.
Any business can survive the pandemic and adjust to the new normal just by pivoting to a new business strategy. As a business owner, you have to think about growth and look for methods you can adopt in your business to adjust to the new normal and remain relevant. Keep reading to discover ten (10) things you can adopt in your business to adjust to the new normal.
1. Accept the changes
The first and most important thing to do for your business to adjust to the new normal is to accept the changes and embrace the new normal. Waiting for things to go back to normal before you continue your business is the wrong move because things might never go back to the way they were.
2. Think Technology
Innovation and the use of technology in businesses have been on the rise, before the pandemic. Technology is the future of the business world. The latest trend since the pandemic started is to replace manpower with technology. With this, the business continues without endangering the lives of the employees.
3. Change your business model
Reinvent your business, align your business strategies with society’s changing needs and develop a low-cost business model that would help you to stay in business while delivering your best.
4. Involve your employees
The business world has reached a level where you have to involve your employees in the decision-making process. This gives them a sense of responsibility and makes them more involved in the growth of the organisation. Involving your employees will help the business to adjust well and experience growth.
5. Focus on your customers
Listen to your customers. Make an effort to meet their increasing demand and take advantage of their changing attitudes and behaviour. You can do this by conducting a survey and requesting feedback. This is the best time to conduct market research and get all the information you need. This way, you would know if you are on the right track.
6. Stay connected
Transitioning from the current state (Covid-19) to recovery state (Post Covid-19) requires staying connected to the outside world. The question; ‘what is working or not working for other businesses?’ should be asked as often as possible.
7. Adopt a mobile strategy
Since the beginning of the pandemic, the majority switched to remote working, which might have brought about a reduction or lack of communication for some businesses. Business owners should work on their communication system during this period by employing a mobile strategy to get employees up and running.
8. Focus on advertisement and marketing
To cut costs, many businesses are cutting their advertising and marketing budgets, so any business that focuses on advertising and marketing will get all the attention it needs now.
9. Collaboration, flexibility and accountability
The best time for flexibility, collaboration and accountability in business is now. Adopting systems such as informal interactions and remote work would help build a flexible, accountable and better workforce. Not only will this make your employees happy, but it will also give your business the exposure it needs.
10. Risk management systems
Businesses should take advantage of this opportunity to set up a risk management system. The pandemic is enough enlightenment for businesses to know that they should put measures in place to identify, assess, monitor and mitigate the impact of risk on their business in future.
If your business has been affected by the pandemic, you can get back on your feet and begin to break new grounds. All you have to do is adjust your business to the new normal by thinking differently and being strategic in all dealings.
5 ways to raise funding for your business
Here are a number of ways to raise funds for your business.
One of the biggest challenges that entrepreneurs face is finding the necessary funds to grow their businesses. Startups have to deal with various costs, while ongoing businesses have to finance growth and working capital. As money does not grow on trees, there are a number of ways to fund your business.
We will love to see your business grow and make huge impacts, which is why we have compiled in this article five concrete ways to raise the money you need for your business.
This means financing your company by scraping together any personal funds you can find.
In many cases, using the money you have instead of borrowing or raising is a great approach. In fact, some entrepreneurs continue to bootstrap until their business is profitable. This can be beneficial because it means you won’t have extensive loans and monthly payments that can weigh you down, and investing some of your own money will usually make investors and lenders more willing to partner with you down the line.
Friends and Family
If your funds are not enough, you can turn to the people closest to you. This is often a good first step before considering external funding. Family members and friends can be easier to persuade than anonymous lenders because they are less likely to demand stringent repayment terms or high-interest rates.
Borrowing from friends and family comes with its own set of risks. If the venture fails, or if it takes much longer than anticipated to repay the loan, your relationships can suffer.
Before you ask your friends and family for money, you should have a business plan ready. This way, you can explain to them exactly what you are doing and how you will make money. Also, ensure that you have all terms of the loan written out. That includes how much you are getting, the amount of interest charged, and the terms and deadline of repayment.
Angel investors are groups or individuals who invest their own money into other people’s businesses. They stand out because they tend to invest in companies at earlier stages of growth and are always on the lookout for the next business to invest in. Many of the biggest tech companies today, including Google and Yahoo, were funded by angel investors. Typically, an angel investor is one who is successful in a particular industry and is looking for new opportunities within that same industry, or other industries. Not only can angel investors offer financing to get your business off the ground, but some may also choose to guide you. They may also leverage their existing contacts within an industry to open doors for your business.
Businesses have been using the internet to market and sell things since the 1990s. However, over the last decade, the web has become a new source of financing as well. With this, you can get funding from websites where investors can support your business no matter where they are in the world.
You will be required to set up a campaign and name a target amount of money you want to raise, as well as create perks for donors who pledge a certain amount of money, such as early access to products, discounts, and so on. You then raise money for the campaign over a specified time. Some websites you would use for this financing method are Kickstarter, GoFundMe, Indiegogo, Crowdrise, and many others.
Loans can be gotten from banks or other financial institutions. This method is one of the oldest, although many do not prefer it.
To get loans, you might be required to show that you’ve started gaining traction and making money (and that a loan would help you earn even more). You may also need to present a well-detailed business plan. Your business’ financial projections give lenders the details needed to be sure of the income you would have to repay loans, including interests. Usually, bank loans do have legal regulations, which will have to be followed accordingly.
In conclusion, entrepreneurs must weigh the benefits and downsides of available funding options and determine which one provides the greatest flexibility at the least cost. There are many options for financing your business, so do not get discouraged if one does not work out. By demonstrating due diligence and resourcefulness, you can easily raise the capital you need to move your business to the next level.