Having a retirement plan and investing adequately to this effect is a very essential thing to do. Unfortunately, many Nigerians seldom invest towards retirement due to some factors ranging from poverty to high cost of living and lack of knowledge about the importance of financial planning.
Understanding the issue
Let us consider the high cost of living in Nigeria for a moment. Millions of Nigerians merely survive on their salaries, struggling on a daily to meet their basic needs. This situation makes it extremely difficult for people to save money let alone invest.
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But there could be a way to get around the situation. According to Tomie Balogun, a renown financial literacy advocator and Co-founder of Midas Capital NG, Nigerians would find it less difficult to invest in their future if only they are willing to prioritise it just as much as they prioritise their bills.
Balogun revealed this recently in Lagos while speaking during the third edition of AXA Mansard’s Out of The Box, a financial roundtable that was organised by the insurance and asset management company.
“Investing in your future would be less difficult if it becomes part of your bills to pay- @TomieBalogun. The third edition of “Out of The Box” had Tomie Balogun, our amazing guest who is a leading expert on how to start, manage and grow investment clubs… Time to stop spending money impulsively and put your money to work for you.”
This is a very important financial advice from Balogun and it basically entails planning your revenue properly. Imagine you imbibe the habit of spending your money on investment packages the same way you spend it on groceries and clothes. The difference here is that while the money you spend buying call credit and internet subscription will never return to you, the one you spend on your pension and life insurance will become useful again when you are aged and unable to work.
More important advice
Balogun also advised that it is high time Nigerians stopped spending money impulsively. There is no doubt that many people in Nigeria (especially young adults) spend money anyhow, sometimes without a budget. The money people expend on unnecessary gadgets and other perishable luxury items could be properly invested towards future retirement.
How Nigerian SMEs can survive high mortality rate
SMEs are a very important economic catalyst in developing and industrialized countries.
In Nigeria where unemployment is a serious issue, the local businesses have a special position in the industrial sector because it has created employment and has been able to utilise labour. The local businesses, otherwise known as SMEs which means, Small And Medium Enterprise are everywhere, found on every street and corner as they surround us.
There is however no universal definition of SMEs that is widely accepted as it differs and varies from countries, but this is usually based on employment, assets or combination of the two. Institutions and organizations define SMEs in different ways depending on the purpose and the objective. Take for example, according to Organization for Economic Co-operation and Development OECD (2005) SMEs are considered to be independent firms that employ less than a given number of employees. However, SMEs were classified in terms of size, and financial assets.
The Small and Medium Industries and Equity Investment Scheme (SMIEIs), defined SME as an enterprise with a 200 million naira maximum asset base, with the exclusion of land and working capital and with a workforce of not less than 10 employees and not more than 300 employees. Akabueze,(2002).
The Third National Development plan of Nigeria (1975 – 1980) defined a small scale business as a manufacturing firm that employs less than ten people, or whose machinery and cost of equipment does not exceed N600,000
The Federal Government Small Scale Industry Development Plan of 1980 defined a small scale business in Nigeria as any manufacturing process or service industry, with a capital not exceeding N150, 000 in manufacturing and equipment alone.
These definitions give a clearer explanation as to how the meaning of SMEs differs and varies. However, just to give you a clearer understanding of what local businesses or SMEs mean, they are independently owned organisations that require less capital and less workforce and less or no machinery. They are ideally suited to operate on a small scale to serve a local community and to provide profits to the business owners.
Most enterprises in Nigeria, most of which are in the commercial sector are categorized as small businesses. The role of the small and medium enterprises towards the development of Nigeria is of great importance as it has contributed greatly to the country in terms of growth and development and also in providing employment opportunities.
From seminars to workshop initiatives for SMEs both locally and internationally, a lot is being said about SMEs all over the World.
According to the Central Bank of Nigeria report (2003), SMEs are a very important economic catalyst in developing and industrialized countries.
According to the United Nations Industrial Development Organization (UNIDO), developing countries can conquer poverty and inequality by democratizing, deregulating, and liberalizing the integration of the global economy. Recent studies have shown that SMEs contribute to over 55% of GDP and over 65% of total employment in high-income countries also that SMEs and informal enterprises account for over 60% of GDP and over 70%of total employment in middle-income countries (OECD, 2004).
However, considering the term “small”, there’s a whole lot of enormous challenges that come with it. In Nigeria, the factors working against the development and growth of local businesses are quite numerous, some of which include:
1. The issue of funding is a major problem with SMEs in Nigeria. However, the problem is not how to source it but the accessibility to either short or long term loans.
2. Lack of infrastructural facilities is a serious impediment to the performance of SMEs. The problem of inadequate infrastructural facilities includes electricity, good road network, availability of potable water, and solid waste management. These infrastructures are left to the business owners to provide themselves.
- Poor Management and Low Entrepreneurial Skill Base is a serious clog in the survival of small businesses as there is a lack of essential and required expertise in business which leads to wrong and costly decisions and mismanagement.
- Entrepreneurs often blame their failures on inadequate sales. However, the problem lies with poor marketing skills that could help promote their sales.
- Most entrepreneurs go into business without proper planning by taking a realistic view of what their strengths and weaknesses are, let alone giving careful consideration and analyzing the economic trends or business conditions in that particular sector of activity, which sometimes leads to mishandling when the business starts to expand.
- The root of most employee problems in Nigeria is poor personnel management. They put aside personnel matters till crises set in. Such crises usually pose serious threats to the firm’s survival if they are not promptly looked into.
- The harsh deteriorating macroeconomic environment in Nigeria has adversely affected the performance of small business enterprises and has posed as a major challenge to their survival and growth. Most small business enterprises are struggling with the problem of uncertainty caused by the unstabilized macroeconomic environment and policy shifts.
With all of this ongoings, some of the solutions preferred to ease these challenges include:
1. The need for government, and non-governmental organizations to create Seminars and workshops initiatives and other forums, to establish a platform for the interaction of SMEs owners/managers with others which can help to improve on their management capabilities.
2. Government should also provide the necessary infrastructures in order to ease the burdens and thereby encourage and promote rural industrialization.
3. The SME owners/managers should strive to develop effective marketing strategies in order to boost business operations which will become profitable.
4. It is important for SMEs to develop good personnel management policies to avoid crises that could affect their business.
5. Local business owners should take to proper planning, realizing his strengths and weaknesses before diverting into any business to avoid mishandling.
6. Goverments should help create a macroeconomic environment that is stable as it will enable these local businesses to make reasonable forecasts on costs, turnover, and return on investment.
7. The government should help in making funds easily accessible to SME owners/managers, be it short or long term loans that could help to encourage them to execute their business plan.
8. SMEs operators should also develop their competences in managing and sustaining their businesses by constantly engaging in training, research and development.
Emergency Fund: Can you raise N50,000 cash tomorrow?
Focus on building up your emergency funds before building a portfolio of assets.
Can you raise N50,000 cash tomorrow? Yes cash, without selling any asset of yours; Can you? This is a very important question you need to ask yourself. One generally accepted lesson from the 2020 economic downturn for both corporations and individuals is to always have an emergency fund (EF). So, what is an Emergency Fund? How is it set up? How is it used? Let us explore.
What is Emergency Fund
An EF is a savings account set up to pool and hold a minimum of three months of calculated Non-Discretionary Income (NDI). The EF is advised as the first activity any investors should undertake. Specifically, before even investing a cent, set up and maintain an EF because this fund acts as an “insurance” or stop-gap for your income or investment portfolio.
How is an Emergency Fund set up?
An EF captures a minimum of three months of Non-Discretionary Income (NDI). What is NDI? These are expenses incurred that must be settled irrespective of income. For instance, rent must be paid, groceries must be paid, we cannot simply stop paying utility bills because we lost our job and thus income.
Once we decide on an investment plan, the first thing to do is to list out all expenses we will incur and attach a cost to them per month or annual basis but corresponding to the period of payment. We do this to identify the necessary expenses which we refer to as the NDE.
List of expenses
- Rent N1,500
- School fees N500
- Camping/Holiday N300
- Go to Movies N100
- Groceries N400
- Cable TV N200
- Gas for cars N200
- Phone Bill N300
- Eating out Dinner N200
Total expenses for the month are 3,500
Next, decide which of the expenses listed above are Non-Discretionary. In other words, which of these expenses must be settled irrespective of income? Let us assume our client chooses the following as NDE:
- Rent N1,500
- School fees N500
- Groceries N400
- Gas for car N200
- Phone bills N300
These expenses above come to a monthly NDE of 2,900, with a three months minimum of 8,700. This minimum sum means that should the client lose his job or suffer any other income interruption, these necessary expenses will be paid from the emergency fund, without the need to sell down investment assets at fire-sale prices just to raise income.
How is it used?
The Emergency Fund is simply a piggy bank. Once it is set up, you can increase the minimum saving from 3 to 4 and as high as you want to go. What is does is insulate your investment portfolio from losing any compounding or dissipation in principal because you must sell. So, if there is income interruption due to job loss or you simply want to take a long holiday and write a book, you can do so and still meet your expenses from these savings.
An EF is not only for downturns, as it is also good for opportunities. A friend of mine bought an almost brand new car from a work colleague that was emigrating abroad because he could pay cash immediately in short notice. Cash is always king when you are in a tight negotiation with a seller.
Your Emergency Fund should be kept in cash or near cash investments. Return on investment for the EF is secondary to access to those savings. Also, you want your EF in an investment class with fixed income with no variation in returns. this means in practical terms do not invest your EF portfolio in equities that pay a variable return or even any asset which may need documentation and visits before you can access your funds. I am also wary of a commodity like gold, which does hold value, but cannot easily be converted to cash. The recommended asset classes to invest your EF are:
- Call or Fixed Deposit in Banks
- Sovereign Treasury bills, they are easily discounted and converted to cash
- Certificates of Deposit with bank
If the asset call cannot be converted to cash in one activity should be avoided. Also, ask the institution if they charge fees for early withdrawal and what those fees are.
What can I do tomorrow?
- Start an emergency fund immediately. Do the expense exercise, determine your Non-Distortionary Expenses, start to build up a savings pot.
- Focus on building up your emergency funds before building a portfolio of assets.
What bad stocks have in common with bitter relationships
The feeling you get from marrying the wrong partner is similar to that felt after buying the wrong stocks.
I have always argued that stocks cannot be summarised into one statement for a newbie, until recently when a friend told me that it could.
“Simply put, buying stocks can be likened to relationships,” he said.
I did not immediately agree, but over the next few minutes, he explained to me what he meant, and drew several analogies to back his claims.
While he is no expert, I understand that he has drawn his conclusion from his experience buying stocks for himself over the past 5 years, so I took his points seriously. These points have been summarised in this article.
When it crashes, there is no telling how far it can go
My friend mentioned of some company’s stock he bought in 2016 in the hope of selling short-term. At the time he bought, there was a dip and he expected things to pick up within some months so he could sell-off.
Two years later, the stock price had plummeted 50% down from the price at which he bought. Without saying, he became a long-term investor because he was not ready to sell off at a loss.
How does this liken to being in a bad relationship?
As the value plummets, you keep hoping it will rise again and then before you know it you are stuck for the long haul. Same thing can happen with a wrong partner. You remain there hoping things will be better but it gets worse.
It could happen sometimes that a company’s stock market price comes crashing and it never goes back to where it was again. The factors which triggered its fall, may not even be able to return it to its starting price.
The stock price is not indicative of the company’s profitability
For some reason, there are company stocks market prices that remain low year after year despite the billions declared in profits, and the dividends paid out to shareholders.
Sometimes, the stock market price could still slump even when the company has positive records in its financials. Market experts are not always able to explain this, but it remains true. Some of the most profitable stocks are undervalued.
You can never take stocks at face value
That a stock has been on an upward trend in the last few months does not mean it will remain so. One must always consider several other factors before purchasing a stock.
While it is important to look at past performance, there are other things that could point to the likely future of such stocks.
Say, for instance, the company has just announced a new board chairman who was implicated in some fraud cases in the past. It doesn’t matter how well the stocks have performed in the last 365 days, or the chairman’s competence, the stock prices are most likely to slump due to loss of investor confidence.
There was a recent case where the CEO of an internet service provider company was alleged to have been involved in sexual harassment, and was eventually pressured by shareholders to resign. The pressure came not necessarily because they thought he was guilty, but because of the implications on the company.
You have to probe to discover the real qualities.
The most expensive stocks are not necessarily the best.
If you ever heard a stock described as under-priced or over-valued, then you should understand that the price you pay is not necessarily suggestive of the value.
Some great stocks, with good potentials, high liquidity, good company profile and adherence to corporate governance ethics, are not as expensive as they should be. While some other stocks are ridiculously overpriced, even when they do not have as much promise. Some of these overpriced stocks could still be basking in past glory or just positive media hype.
This explains why investors must conduct due diligence before putting in their hard-earned money. Sometimes the media hype around a company’s stock might not be giving you all the information you need to make a decision, so you necessarily have to go the extra mile.
Subscribe to newsletters from financial news websites if you need to, take courses if you have to, but ensure to learn all you can.
Remember price is what you pay for the stock, but value is what it is really worth, and there is no law stating that one must justify the other.
When you get the wrong stocks, you get stuck!
You know that feeling when you are sure that you have made the wrong choice, but also know that there is no way out? That’s the feeling you get when you marry the wrong partner, as my friend said. And that’s the same feeling you get when you get the wrong stocks.
You simply get stuck.
No returns. No dividends. Probably, no way to sell either because no one else is interested in buying from you. And if you do succeed in selling off at this point, you would most likely be doing so at a loss.
If you study trends in the stock market, you will see some dormant stocks that have remained stagnant for long periods of time. No rise in share price, no fall in share price, and no share is being traded either.
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It is not a nice position to be in, and that is why you want to be sure of the company, its management, and board members who take the decisions before you decide to buy or not, even more so when you are a long-term investor.
And even then, with the wrong stocks, you could suddenly find that your proposed short term investment of 6 months will run into years because you keep waiting for things to pick up before you sell.