Last week, we had a session on our DA community led by Mr. Onome Ohwovoriole an Analyst at Nairametrics. You may join our community using this link;
This session was very insightful and we want to share with you a glimpse of what we learned directly from our speaker.
The topic is building a successful portfolio. I’m going to take it from 2 angles. What is a successful portfolio & what does it take to build a successful portfolio?
A portfolio simply means investment in a group of assets. We can learn 2 things from that. The first being you shouldn’t have all you own in just one asset. The second is that it is a group of assets meaning they are being held for gains. The gain could be an increase in the value of the asset or it could be earning an income on that asset.
You can split assets into 3 categories;
- Low risk
- Medium risk
- High risk
An ideal portfolio should have a bit of each. The proportion however will change as one grows older.
The lowest form of risk is lending to the govt. At the moment however, that isn’t lucrative. A 1 year treasury bill at the moment has a return of 0.15%. While that isn’t lucrative, it fulfills one of the cardinal rules of investing. Safety of capital is more important than return on capital.
Capital varies from person to person. The larger the sum involved however, the more safety takes priority over return. So let’s say I have N100 million. At that stage my goal is to preserve the bulk of that money.
The larger the sum involved however, the more safety takes priority over return.
Next, we have medium risk assets. For this, you have things like blue chip shares and real estate. Medium risk assets may have some level of volatility and require a longer time horizon to yield returns. But they will yield a better return compared to low risk assets.
In the last bucket you have investments such as growth stocks and crypto currencies. These are classified as high risk because they are extremely volatile and you can lose your entire investment if things go south. These are classified as high risk because they are extremely volatile and you can lose your entire investment if things go south.
The most important assets however in my view are your health and your skills. Without both you can do nothing. It is important that you take great care of your health especially in your youth. The returns will pay you down the line. Personal development is also key. The higher your income, the more money you have to invest and the more investment options you have.
So let’s say I’m dealing with a client that wants to invest 1 million a month. I can easily afford to allocate 100,000 to crypto currency. That’s just 10% of their monthly investment. On the flip side, a client with a sum of 100,000 may not have room for such high risk. So they can do say 10,000 a month. A client with 100 million to invest can also afford to go for a 20 million real estate investment. The real estate options for someone investing say 100,000 are quite hard. So size matters. Size ultimately depends on your income. The multiplier effect of a large income also pays you ahead.
So a 25 year old investing say 500k a month will have well over 190 million by the time they hit the age of 60. If they are conservative they can afford to take an early retirement age the age of 45 if they earn up to 10 million per annum in returns on their investments A 45 year old investing the same sum on the other hand has bigger responsibilities. He or she may have a spouse and kids. So getting to a high income bracket in relative youth is a big advantage.
Let me also touch on a few things that are not in the presentation
Insurance is an asset class many people neglect but is quite key. So if you don’t have either a health insurance plan or a life insurance plan, please sign up for one. A common complaint I get about them is a delay in payment of claims. That does happen but those are becoming issues of the past. I also tell people that having options is better than having just one option which is your current income.
In the absence of any other questions, that will be the end of my presentation.
Questions
- If I keep investing and withdrawing does that count? I don’t think I can sustainable keep saving till 60… But will love to though
If you keep investing and withdrawing you will slow down the growth.
However what you can do is to have investments for the short term and investments for the long term.
You can cash out on your short term gains.
- Can you please shed more light on the difference between the health insurance and Life insurance? At what age should one consider having a life insurance?
Life insurance can be taken at any age. The younger the better. Healthy insurance takes care of health expenses that may arise. Life insurance provides a stated sum to your beneficiaries in the event of untimely death> Health insurance takes care of health expenses that may arise. Life insurance provides a stated sum to your beneficiaries.
- Are stocks/shares medium risk?
What are some determining factors in helping individuals invest in a particular company? What are some things to look out for in a company you would want to invest in? What are some factors to consider that could result in the increase in a company’s shares which could drive young investors to invest? What determines buying and holding shares or buying and selling?
Solid management. A great fan base. Such as what apple and Tesla have. Dominant in a niche or industry, Demand and supply. News about the industry or the economy as a whole. Stocks with solid management and a long history can be classified as medium risk. Stocks of young firms just starting out are classified as high risk
- How do you diversify your investments. Example- you earn 100,000. What percentage do you recommend should be saved? What percentage should be invested in stocks? Real estates and ETF
That would vary from person to person. People’s risk appetite differs. I think as a rough rule, one can have between 30 to 50% of one’s investments in low risk assets such as a money market fund. The rest can be invested in medium to high risk. It however varies with age and risk appetite
We hope you learned something from this session. If you have any question, do let us know in the comment.
