Investment decisions: Doing more with our savings

As much as saving is encouraged from our earning, we should save money by merely putting a certain amount aside. We should proceed to the stage where we have to decide what to do with our savings. Of course, the savings we have made or are about to make must give us further benefits. These benefits are desirable if we think of the opportunities we are foregoing to save.

Therefore, savings are not made for the sake of savings alone but for the future benefits that will be accruable. It is also pertinent to write here that the size of our savings will become a determinant to choosing the sort of investment decision we will make. Our savings will also be a function of what we earn and the level of financial discipline we are willing to undertake. However, the investment decision we are making must be such that we can maximize our benefits. The benefits from investments will be in dividends, profits, rent, and such incomes.

What are the various options available to us?
In considering the options available to us, we will group investment into two major groups i.e. Short term investment or Long term investment

Short term investment
These are investments whose lifespan is not more than a year. It means that whatever we invest, we will collect back within a year.
Examples
(a). Savings account with a commercial bank.
Usually, when we save with a bank, we do not intend to keep the money with them for too long. In fact, we can always go there the following day and collect our money. Because of the frequency of our withdrawal, the benefit we derive from such is meager. Ordinarily, these investments are safe and guaranteed up to #50,000 even if the bank ceases to operate. So, our savings accounts serve the dual purpose of saving and investment.
(b). Term deposits
These usually take 30 days, 90 days, 180 days, and 360 days. The difference between this and savings accounts is that you have absolute right to withdraw all your money at the end of the tenure of the investment. Also, the interest income on term deposits is slightly higher than that of the savings account.
(c). Treasury Bills
These are short-term investments with the Central Bank of Nigeria. The Treasury Bill is an instrument you invest in for a specified period, usually 90 days. The interest is typically fixed, and there is the assurance that you will get your money back. For this, the interest is usually low.
(d). Personal Lending.
Another type of short-term investment is personal lending to a third party. In this type of investment, the two parties involved usually agree on the rate of interest to be paid at the end of the lending period. More often than not, personal lending attracts higher interest than all other investments mentioned above. However, the risk involved is that the entire investment can be lost. Sometimes it might lead to hatred, especially if no formal agreement is drawn.
(e). Co-Operative And Thrift
This is a type of investment that serves dual purposes, in that you earn interest on your savings and have the opportunity to borrow. Thus, it is a system strictly based on trust and good neighborliness. Except in rare instances, default cases are minimal as it is a collective investment protected by all involved.
(f). Other Short-Term Investment.
Other short-term investments include buying and selling, joint venture projects, and the likes. Though most often, it may be legally impossible for those in full employment to channel their savings in this regard except in terms of personal lending.

Long Term Investments
These are investments whose lifespan is more than one year. This means that the amount put into such businesses is not expected to be recouped within one year. Of course, long-term investments are in various forms, some of which we shall discuss in detail.

Types of Long-Term Investments
Investment In Shares
This involves buying the shares of companies publicly quoted in the Nigerian Stock Exchange. On purchase of shares, a certificate known as a share certificate is issued confirming the part ownership on the holder of such certificates.
In each year, if the company makes a profit and decides to share it among the shareholders, dividends are paid based on the number of shares you hold. Also, if the company continues to perform well, the value of the shares increases; this is known as capital appreciation.

Apart from the usual annual dividend, you can also dispose of your shares anytime you desire. The privatization program provided an excellent opportunity for everybody to invest in shares of companies being privatized. However, a small investor, for instance, cannot determine what he will earn on such investment. The share certificates were once accepted as collateral to borrow from financial institutions.

Investment in Units Trust
This is an investment opportunity open to those whose income or savings might be too low to invest directly in the company’s shares. In this regard, a fund manager pulls the resources of various investors known as unit holders and invests such monies in various companies, giving a wide range of opportunities to balance their risk and returns.
Insurance Policy
Taking up an insurance policy that falls under the categories below is a type of long-term investment. Life policy, Educational endowment policy and Personal pension scheme.
To be continued tomorrow
Oluwadele, Ph.D., is a chartered accountant, author, and Public Policy Scholar based in Canada.
Email: bolutife.oluwadele@gmail.com