We’ve all heard about the need to invest. It’s supposed to provide benefits ranging from financial stability to obscene wealth. As a young adult in Ghana, you have probably figured out that even if you save a significant portion of a small income it will not magically transform into mansions and luxury cars down the line (and if you hadn’t, you’re welcome).
But that does not mean that you should not save and invest. There are various investment options you can pick from, that may not turn you into an Aliko Dangote, but will contribute to your financial stability. In this article I will introduce you to a number of them.
Low Risk Options
1. Government Securities. This is where you lend to government by buying treasury bills, notes or government bonds. These are risk-free since the government will not default but you still stand the risk of inflation rising to a level higher than the interest on the securities. Treasury bills especially are easily convertible to cash so you can buy them without fearing that you will not be able to withdraw when you need it. You can buy government securities through your bankers.
2. Mutual Funds/Unit Trusts. Mutual funds/unit trusts pool funds from various investors and then use those funds to buy several different securities. So they provide you indirect ownership of all the securities they hold. Mutual funds provide you with a diversified portfolio just by owning them. They however do not provide the consistent returns a government security would and their returns fluctuate year on year. Also they charge you professional management fees and usually have a minimum period of time within which you cannot withdraw your money without a charge. See a list of some Ghanaian mutual funds here.
3. Fixed Deposit. Dissatisfied with the interest on your savings account? You can opt for a fixed deposit. This is where your bank offers you an interest rate higher than that for savings accounts for a specific period in exchange for you not withdrawing your money for that period. Talk to your bankers about their terms for a fixed deposit.
4. Pension Schemes. If you’re formally employed you likely are making SSNIT contributions already. Self-employed people can also make contributions to SSNIT. There are also private pension managers you can use. Find some of them mentioned here.
5. Savings Account. It’s available but should you really leave your money in a savings account? Probably not. Seek other options.
Medium Risk Options
6. Stocks. A stock or a share grants you a part ownership in a company and entitles you to receive a share of its profits (dividend) and a bunch of company paraphernalia during the annual general meetings. You also benefit from the rise in price of the stock and you suffer when the price of the stock falls. And if the company goes broke you are only considered after the company has paid off everyone else. But along with all this risk comes the potential for large returns depending on how well the company does. To purchase stocks, contact any of these brokers.
7. Corporate Bonds. These allow you to lend to companies over a fixed term with a fixed interest rate and regular interest payments. The corporate bond market is underdeveloped in Ghana but some companies recently issued corporate bonds and the Ghana Stock Exchange has some listed but they are not actively traded. I hope they will become more available in the future.
8. Mortgage-backed Securities. In simple terms, people buy a house on credit and make monthly payments. The people who sold the house then sell off the right to receive these monthly payments to a third party. The third party can then structure this into parts and sell to investors. So the return the investors will receive depends on the occupants of the house making their payments. Expect mortgage-backed securities to be available in Ghana as Ghana Home Loans has received the go ahead from the Securities and Exchange Commission (SEC) to issue them.
9. Precious Assets. You could buy gold, silver or diamonds and hope that their prices appreciate significantly over a period of time. You never can tell with such things how the price will go and a huge price drop could sink a considerable portion of your investment portfolio. Of course you could also benefit from a significant rise in prices.
10. Derivatives or Forex Trading. Just like physically owning precious assets, trading in derivatives such as Contract for Differences (CFDs) or binary options or trading forex comes with the high risk of not having a fair idea of which way the market will go. I personally do not consider these investments but since they are gaining popularity I think it would help to cover them. Most of the time trading will be magnified by leverage (borrowed money) and small price movements in the wrong direction could wipe out large portions of your capital. If you want to trade derivatives, especially forex, read this first.
In a high inflation environment, you must invest just to maintain your purchasing power. I’m sure among the options I have presented you can find something that matches your investment goals and risk appetite. Consulting a financial advisor who will look at your specific conditions and help you choose the right products is helpful and I encourage you to do that as well.
I wish you happy investing and abnormal returns!
By Jerome Kuseh
Jerome Kuseh is a financial analyst, a digital media consultant and an associate member of the Institute of Chartered Accountants, Ghana. He blogs about finance, accounting, tax and economics on ceditalk.com and politics on jeromekuseh.com. He’s @readjerome on Twitter.