Growing wealth in 2022: 9 asset classes to actively consider

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For much of humanity, the New Year is a time to reflect on the past and a time to reiterate your “new year’s resolutions ”. “This year, I have to invest more”, “This year, I have to take my finances seriously”,This year I have to make better decisions.. Your zone of reflection, the sober period. You just came out of the December highs… Detty December as it is commonly called. The month that is akin to a night out with friends where good humor and good humor push you to spend $ 1,000 unbudgeted while carelessly ignoring the fact that January is the longest month with 310 days … except that the last ” 0 ”is somewhat invisible on the physical calendar.

Retail investors are often faced with what we call “paralysis of analysis”- an inability to make a decision due to over-thinking about a problem. “What can I invest in?”Everyone’s Dilemma, the rocket science of financial planning.

The truth is, there is so much to invest in, but no one invests for the sake of investing; the goal is feedback and that’s what makes it so complicated. Profit is in business as returns are in investing. So, navigating the plethora of options to get returns on investments is the tricky part due to the risks involved in investing.

But let’s unpack the investment options together

Important note: (x%) = returns since the beginning of the year. Year-to-date (YTD) is a term that indicates the growth or decline of an asset between the start of the year and the current (present) date. The importance of this metric is to assess the return on your investment if you had invested in an asset at the start of the year.

For example – Bitcoin’s current year is (70.43%). A 50,000 N investment in Bitcoin in January 2021 will bring in a total of 85,215 N (principal + interest) at the time of writing (December 28, 2021), Ceteris Paribus.

There is a range of asset classes in which the average individual invests. We discuss nine of them in this article: Stocks, Indices / ETFs, Mutual Funds, Currencies, Cryptocurrencies, Commodities, Startups, Real Estate and for some people “Personal investments ”. It all depends on your risk appetite. Remember the golden rule. The lower the risk, the lower the returns, the higher the risk, the higher the “probability” of return. Keyword – probability.

When it comes to investing in stocks, it might invest in popular US stocks such as Apple (39.35%), Tesla (49.90%), Facebook / Meta (28.72%) and the moderna vaccine company (137.3%); or Nigerian stocks such as Guinness (105.26%), Dangote Cement (5.35%), bank stocks like GTB (-20%), Access Bank (4.73%), FBN Holdings (60.84%) ).

But stock picking can be tricky for the average investor and this is where indices / ETFs ETFs (Exchange Traded Funds) are simply defined as investment vehicles that group together the weights of different stocks that take the stress out of stock selection but rather follow indices. Popular indices are the S&P 500 (27.43%) which represents the stocks of the 500 largest companies in the United States, or the NASDAQ 100 index (22.45%) which represents all the top technology stocks in the United States. . In Nigeria we have the NGX 50 index (0.07%), so when you buy an ETF that tracks the NGX 50 index, it gives you ownership and performance of all the securities listed in the NGX 50 index. The ETF tracks the top 50 companies in terms of market capitalization and liquidity in the Nigerian forex market.

Other options are Mutual fund like the Stanbic IBTC Dollar Fund (SIDF) which invests at least 70% of its portfolio in high quality Eurobonds, a maximum of 25% in short-term USD deposits and a maximum of 10% in USD equities . You can view the options of some popular mutual funds such as the Nigerian Eurobond Fund (6.70%) and United Capital Sukuk Fund (7.24%) on an app called Cowrywise.

Others invest in currencies and profit from one currency outperforming another currency, either by trading it on the stock exchange or converting it to cash. For example, the US dollar has improved against the British pound – US / GBP (1.78%) and in the official market the naira has devalued against the US dollar – NGN / USD (-7 ,30%).

Then we have cryptocurrencies, the new kid on the block that has created a new perspective on the financial markets. Initially, most people saw crypto-currencies like a big bubble that would make everyone cry but it turned out to be the opposite for the less greedy. Satoshi’s vision was to put money in people’s hands with Bitcoin and cryptocurrency is on the way to making that possible. The keepers of mainstream finance watch the party next door and wait for the crypto music to fade away, but the tables don’t seem to be turning again – people are now changing seats.

People invest in Bitcoin (70.43%), Ethereum (436.64%), Dogecoin (3098%), and Sandbox (17.036%) among others. You will notice that the YTD yields are very high compared to the other assets mentioned earlier. But with high returns comes high risk. The crypto market is very volatile and leads to sleepless nights and compulsive checking of your Binance or Bybit applications, reminding us of the popular investment saying – “Invest what you are prepared to lose ”. Average dollar costs work best for volatile markets or a simple buy and hold (flat rate) strategy – but synchronizing the market? Impossible.

With over 16,000 alternative cryptos to choose from in addition to Bitcoin, an unlimited supply of easy-to-create cryptos with virtually identical properties creates a fictitious environment for the naive investor. A cryptocurrency can be easily created in 10 minutes, so it’s important to understand market capitalization metrics, use cases, white papers, and the need for a financial advisor to make a decision.

However, I must add that in the management of investments there is something that we call the Sharpe ratio – it is used to compare the returns of an investment against its risk. While Bitcoin outperformed the S&P 500 on an annual basis, it outperformed the S&P 500 on a risk-adjusted basis (Sharpe ratio) as its performance should outweigh its volatility (excessive risk) by a higher margin. high to justify its inclusion in a portfolio. This is why most of the large investment firms like pension funds do not expose their portfolio to cryptocurrencies.

Another option that investors may want to consider is Merchandise. Commodities showed a decent performance in 2021, as coffee (80%), Brent oil (48%), copper (25%) gave their holders good YTD returns but it was quite disappointing for them. other metals and gold (-5%) – the supposed hedge against inflation that could not perform well in the most inflationary environment possible.

In the diagram below, you will see what an investment of 50,000 naira would have brought in from the start of the year to December 28, 2021.

Another great option that new-age investors are considering is Start-up. A startup is a business typically in the early stages of its development – an entrepreneurial business typically started by 1 to 3 founders who focus on capitalizing on a perceived market demand by developing a viable product, service, or platform.

In Nigeria, Africa and the world in general, there are few successful startups, and at the same time, so many failed startups. The bitter truth is that around 90% of startups fail. 10% of startups fail in the first year. Across industries, startup failure rates appear to be close to the same. Failure is most common for startups in years two to five, with 70% falling into this category.

We only hear about glamours on social media when they achieve unicorn status or get Series D / E / F funding, when it’s already too late for the average investor to invest. This buzz makes the startup investment so enticing that you start now to hunt for the next best thing, the next Uber, the next Flutterwave in their incubation stage. But the lack of publicly available data from startups makes the investment decision-making process difficult, so “due diligence” should be done first and beware of over-regulation!

Looking at real estate, there are two points of view to consider. Do you want a physical property for yourself or do you want a property that will “appreciate” and earn you money? It’s simple, just make sure the documentation is done correctly and the rules aren’t bypassed during the purchase period.

The last but not the least investment option is my favorite. Personal investments. Investing in education or technical skills generates returns that are not subject to volatility, government policy or taxation. It cannot be taken from you. Warren Buffet said: “Investing in yourself is the best way to be successful”. When you hear people earning 10x, 20x of their previous income, it is because they have acquired knowledge or skills that have enabled them to earn a higher income.

At the start of your investment journey, focus on increasing income and investing more money versus return on investment / returns.

A 200% return on a 20,000 N investment is 40,000 N.

A 10% return on an investment of 2,000,000 N is 200,000 N.

Perspective – The latter allows you to invest in less risky assets, while the former sends you on the lookout for risky and volatile assets.

Money is a byproduct of becoming the best. The best way to make big bucks is to become the best at what you do.

In conclusion, three important things:

  • Investing in all of the above asset classes is possible using different allocation strategies commensurate with your risk appetite. Diversification and risk management are two important pillars of investing.
  • The opportunity cost of holding cash is the cost that could be realized if the money was invested instead of being held. Someone give you N50k? Throw it in one of your funds. This is how you build a portfolio. Interest is the reward for parting with liquidity.
  • Above all, never give money to anyone for “invest for you”. Contact a financial professional for advice and do it yourself.

This content is for informational purposes only, you should not interpret this information or other documents as legal, tax, investment, financial or other advice. Nothing on this site constitutes a solicitation, recommendation, approval or offer by the author or any third party service provider to buy or sell any securities or other financial instruments in that jurisdiction or in any other jurisdiction in which such solicitation or offer would be illegal. under the securities laws of that jurisdiction.


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