All through life and living, we are faced with investment choices. These investment choices could include our time, energy and as we get older, it includes our finances.
Our investment choices greatly determine the course of our existence and whether it would be memorable or forgettable.
Last week, Cherry was telling us about how her uncle had been investing in federal government bonds and now smiling to the bank. To be honest, this was something never heard of before. Surely a lot of us reading this may be in the same boat. It has not ended there o! The neighbour also mentioned something about buying shares with stock brokers and everyone in the neighbourhood meeting had to form as if they understood what he meant, (you know posing is part of this game of life).
Really, it might be time to explore different kinds of investments available, and we are going to start with combo investments.
Combo investments entails allocating your investments among different asset classes which is a key strategy to minimise your risks and potentially increase your gains. Variety is said to be the spice of life and just as there are different colours in the rainbow, there are different ways to go about combining your investments.
Right from about finishing secondary school, it is possible to start making investments. Prior to that, the investment choices were made for us by parents but now as adults, we all have to take different decisions in respect of a career path, higher institutions for children/wards or a course of study and so on and so forth. Younger adults may choose a mate, determine a favourite car to buy, a place or country to live, amongst other choices. Every step of the way, we are all constantly advised not to put all our eggs in one basket.
One way to make combo investments, is through asset allocation, which means spreading your investments across various asset classes. Broadly speaking, that means a mix of stocks, bonds, and cash or money market securities.
The goal of allocating your assets into investments, is to minimise risk while meeting the level of return you expect. To achieve that goal, you need to know the risk-return characteristics of the various asset classes.
Equities have the highest potential return but also the highest risk.
Treasury bills have the lowest risk because they are backed by the Government, but they also provide the lowest return.
This is the risk-return trade-off. High-risk choices are better suited to investors who have higher risk tolerance. That is, they can accept wide swings in market prices. The rule of thumb is that an investor should gradually reduce risk exposure over the years to reach retirement with a reasonable amount of money stashed in safe investments. Diversification through asset allocation is important.
Every investment comes with its own risks and market fluctuations. Asset allocation insulates your entire portfolio from the ups and downs of a single stock or class of securities.
Investments companies are another avenue to explore combo investments. They are constantly looking at new ways to generate investor interest in products and portfolios.
The objective is to achieve long term capital appreciation from a portfolio of equities and securities listed among selected emerging markets (Africa, China, India, the Middle East, and Latin America) and global markets (America and Europe).
A combo fund offers investors split percentage exposure in a mixed bag portfolio of traditional assets such as developed market equities, bonds, real estate, and commodities. These combo investment schemes can also come in the form of investment in gold, equities, and debts. According to some experts in this field, “If these three assets (gold, equity, and debt) are combined, they would be able to contain losses much more effectively.
Deciding What’s Right for You
When making investments, it’s important to note that gist from the neighbourhood meetings alone cannot help you. Each asset class has its own level of return and risk. Investors should consider their risk tolerance, investment objectives, time horizon, and available money to invest as the basis for their asset composition. All of these factors are important as investors look to create their optimal portfolio.
You can visit us at any of our FirstBank branches or visit our website www.firstbanknigeria.com to discover some interesting combos we offer.
Image Source: SHUTTERSTOCK
