Basic things to know before investing
We provide tips and guidance on investing and investments in general
Before you make any investing decision, sit down and take an honest look at your entire financial situation -- especially if you’ve never made a financial plan before.
The first step to successful investing is figuring out your goals and risk tolerance – either on your own or with the help of a financial professional like Stanbic IBTC Asset Managers. There is no guarantee that you’ll make enough money from your investments. But if you get the facts about saving and investing and follow through with an intelligent plan, you should be able to gain financial security over the years and enjoy the benefits of managing your money.
Evaluate your risk appetite
All investments involve some degree of risk. If you intend to purchase securities - such as stocks, bonds, or mutual funds - it's important that you understand before you invest that you could lose some or all of your money and you can gain a lot of money.
The reward for taking on risk is the potential for a greater investment return. If you have a financial goal with a long time horizon, you are likely to make more money by carefully investing in asset categories with greater risk, like equity mutual funds or bond funds, rather than restricting your investments in assets with less risk. On the other hand, investing solely in cash investments or money market funds may be appropriate for short-term financial goals or for investors with low risk appetite.
Consider an appropriate mix of investments
By diversifying your portfolio or having an appropriate mix of asset categories, an investor can protect against significant losses. Historically, the returns of the three major asset categories – equities, bonds, and money market have not moved up and down at the same time. Market conditions that cause one asset category to do well often cause another asset category to have average or poor returns. By investing in more than one asset category, you'll reduce the risk of losing money and your portfolio's overall investment returns could have a better performance. If one asset category's return falls, you'll be in a position to offset your losses in that asset category with better investment returns in another asset category.
Create and maintain an emergency fund
Most smart investors put enough money in a savings product to cover an emergency, like sudden unemployment. Some make sure they have up to six months of their income in savings so that they know it will absolutely be there for them when they need it.
A mutual fund is an open-end professionally managed investment fund that pools money from many investors and invests the money in stocks, bonds, short-term money-market instruments, other securities or assets, or some combination of these securities. Most mutual funds are managed by professional fund managers like Stanbic IBTC Asset Management Limited and they are all regulated by the Securities and Exchange Commission.
Investors in mutual funds buy their shares from, and sell/redeem their shares to, the mutual funds themselves. Mutual fund shares are typically purchased from the fund directly or through investment professionals like brokers.
The Net Asset Value (NAV) of a fund represents a fund’s per share market value. It is derived by dividing the total value of all the cash and securities in a fund’s portfolio, less any liabilities, by the number of shares/units outstanding.
Type of Mutual Fund
- Bond Funds
Bond funds invest primarily in bonds or other types of debt securities. They generally have higher risks than money market funds, largely because they typically pursue strategies aimed at producing higher yields.
- Stock Funds
Stock funds invest primarily in stocks, which are also known as equities. Although a stock fund’s value can rise and fall quickly (and dramatically) over the short term, historically, stocks have performed better over the long term than other types of investments—including corporate bonds, government bonds, and treasury securities.
Stock funds can be subject to various investment risks, including Market Risk, which poses the greatest potential danger for investors in stock funds. Stock prices can fluctuate for a broad range of reasons—such as the overall strength of the economy or demand for particular products or services.
- Balanced Funds
Balanced funds invest in stocks and bonds and sometimes money market instruments in an attempt to reduce risk but still provide capital appreciation and income. They are also known as asset allocation funds and typically hold a relatively fixed allocation of the categories of portfolio instruments. But the allocation will differ from balanced fund to balanced fund. These funds are designed to reduce risk by diversifying among investment categories, but they still share the same risks that are associated with the underlying types of instruments.
- Money Market Funds
Money market funds are a type of mutual fund that has relatively low risks compared to other mutual funds and ETFs (and most other investments). By law, they can invest in only certain high-quality, short-term investments issued .Money market funds try to keep their NAV at a stable N1.00 per share or N100 per share, but the NAV may fall below N1.00 or N100 if the fund’s investments perform poorly. Investor losses have been rare, but they are possible.
Historically the returns for money market funds have been lower than for either bond or stock funds. A risk commonly associated with money market funds is Inflation Risk, which is the risk that inflation will outpace and erode investment returns over time.
Like mutual funds, ETFs offer investors a way to pool their money in a fund that makes investments in stocks, bonds, other assets or some combination of these investments and, in return, to receive an interest in that investment pool. Unlike mutual funds, however, ETFs do not sell individual shares directly to, or redeem their individual shares directly from, retail investors. Instead, ETF shares are traded throughout the day on national stock exchanges and at market prices that may or may not be the same as the NAV of the shares. The objective of an ETF is to replicate the performance of a particular index
A Ponzi scheme is a fraudulent investing scam promising high rates of return with little risk to investors. It generates returns for early investors by acquiring new investors and is similar to a pyramid scheme in that both are based on using new investors’ funds to pay the earlier backers. Ponzi schemes often promises very high outrageous returns, paying early investors this outrageous returns with the aim of luring and trapping other naïve investors.
Investors are always advised NEVER to put their monies in Ponzi schemes no matter the rate of returns being promised. Always remember that, the higher the return , the higher the risk. All Ponzi schemes mask the risk with promise of high return/reward.
The Stanbic IBTC Bond Fund aims to achieve competitive returns on investments with moderate risk by investing a minimum of 70% of its portfolio in high quality bonds, while a maximum of 30% of its assets are invested in quality money market instruments including treasury bills.
Stanbic IBTC Dollar Fund aims to provide currency diversification, income generation, and stable growth in USD. It seeks to achieve this by investing a minimum of 70% of the portfolio in high-quality Eurobonds, a maximum of 25% in short term USD deposits, and a maximum of 10% in USD equities approved and registered by the Securities and Exchange Commission of Nigeria.