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Building a Sustainable and Inflation Proof Portfolio

(An Excerpt from the November VCC Blog Post in collaboration with PaceUp Invest)

Statistics

Statistics from World Bank show that:

  1. Remittances in Sub- Sharan Africa grew by 6.2% in year 2020 to 2021
  2. Sub-saharan Africans in the diaspora sent 45 billion USD in Remittances in 2021.
  3. It costs 8.2% to send $200

Studies done by the London School of Economics show that black women experience the most significant pay gaps compared to all men and all other women.

Financial Planning

Financial Planning is an ongoing process that accommodates changes due to circumstances.

Importance of Financial Planning

  1. Financial Goals Accountability.
  2. A form of savings.
  3. Plan for emergencies.
  4. It Improves financial understanding.
  5. It mitigates risks.
  6. It allows for thoughtful Investments and financial growth.

What is Investment?

Investment as defined by Warren Buffet “is the process of laying out money now in the expectation of receiving more money in the future”. It is a way to multiply your savings.

Investment can be made in financial and non-financial Instruments.

Non- Financial Assets

These are assets that cannot be traded on the financial market. Value is derived from the physical net worth of assets rather than a contractual claim, examples include:

  1. Real Estate
  2. Vehicles
  3. Patents
  4. Trademarks (3&4 are examples of intellectual property).

Why Invest?

The following are reasons for investing:

  1. For a better life.
  2. To save for retirement.
  3. The education of our Kids.
  4. To save taxes
  5. To beat inflation.
  6. To prepare for unforeseen circumstances.
  7. To build wealth.
  8. To get returns

Is Investing Risky?

Investing involves knowing financial instruments, receivable returns, time period and how secure the instrument might be. However, blind Investment can be very “RISKY”.

List of Risks that affects investment:

  1. Market Risk: Money could be lost as a result of a market crash.
  2. Liquidity Risk: The inability to get liquid cash when needed.
  3. Inflation Risk: Getting fewer returns on investment as a result of inflation.
  4. Concentration Risk: Putting all your money in one financial instrument.

Risk can be minimized by:

  1. understanding the market
  2. Proper planning.

N/B; “Not investing at all is a bigger risk in itself”.

How to Plan for Investing

  1. Know your money beliefs: These are beliefs that explain the key differences between savers, spenders and people who try to avoid money matters completely. A psychologist from Kansas university said, “Our financial relationships stem from our childhood”.

Money Script: They are beliefs about money that drive financial behavior. Money beliefs are shaped by direct experiences, family stories and parental attitudes.

Money script Avoidance:

  • Money is unimportant
  • Rich people are greedy

Money Worship Script:

  • More money will make me happier

Money Status Script:

  • My self-worth is equal to my net worth

2. Financial Education: It is the ability to process economic information and make decisions about financial planning, wealth accumulation and pension.

3. Intentional Investing: This shows the WHY, WHAT and WHO of your investments.

How to Create your Investment Portfolio

This involves the strategic view on investing by creating a portfolio that will withstand any microeconomic shocks in the long term while also tactically allocating during microeconomic shocks.

Tactical allocation involves the risk management of your strategic portfolio.

In Creating a strategic Portfolio you need to outline the following:

  1. Return Goals (holistic or fragmented goals)
  2. Primary and Secondary goals
  3. Risk Objective (Risk Ability and Risk Willingness)
  4. Time Horizon (long and short-term investment)
  5. Liquidity (positive and negative liquidity needs)
  6. The tax efficiency of investment.
  7. The regulatory aspect of investments.
  8. Unique circumstances (preference based on your present circumstances)

These are needed to create strategic asset allocation in the long term and they are sustainable.

In Creating a Tactical portfolio which has to do with risk management the listed above has to be considered.

How to Create an Inflation-Proof Portfolio

The following are investments that are inflation proof

  1. Commodities: There is a positive relationship between high inflation and the prices of commodities.
  2. Real Estate: High inflation leads to capital appreciation(i.e the value of our property)
  3. Inflation Linked Bonds: High Inflation leads to high coupon payments on bonds.
  4. Dividend-paying Stocks: These are stock appreciation that occurs during inflationary periods.
  5. Long-term asset allocation on the portfolio.
  6. Invest in High quality, High-Value Stocks.
  7. Stay calm when there is market volatility. Volatility is not the same as Risk.

Risk is a measure of value, while volatility is a measure of price.

Additional Notes:

  • Diversify your investment portfolio across different asset classes, time periods and geography.
  • Review your portfolio
  • Seek professional investment advise
  • Do not have the fear of missing out.
  • Be intentional about your investment

This insightful resource was brought to you courtesy PaceUp Invest (https://www.paceupinvest.com/ ) To access more resource like this, please sign up on their website.

The replay to this vide can be accessed via the community platform on www.mynigeria.nl

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