Do you still want to close your savings account??

 

Hello folks, I saw this article on someone's facebook wall and decided to bring it here because there's a fundamental flaw I noticed in this facebook post. Here's the article. 

THE POOR, THE RICH AND THE BANK
A bank is a broker between the poor and the rich. The common place where the poor and the rich meet is the bank. The poor brings money in the form of savings. The rich takes it through borrowing. A poor person saves the money because they have more money than their thinking capacity. They keep the money in the bank so that they can go and think of what to do with the money they have saved. On the other side, the rich people come to pick that money through borrowing because they have more ideas than the money they have. On a practical side, please who can show me one billionaire who got rich through saving. I will show you a million Africans who have money saved in the banks and are still renting the houses that the millionaires and billionaires built through the poor people's savings which the rich borrowed from the bank. I have now realised that the best savings and interests are acquired through investments and not savings. It will surprise you that the only money that the rich allow in their account is minimum balance to keep it alive. Every cash they have is seen on one investment or another. Decide today to remove that money from your account (savings) and look for an investment to reap twice in due course.  

On the surface, this write up is, to say the least apt. But there's something about the write up that I find totally awkward. First of all, it is out of place to downplay the importance of savings culture in a bid to promote investing. The poster took time to do a comparative analysis of savings and investment. But is there any basis for the comparison? Telling someone to bypass saving and jump into investing is like telling a newborn to bypass crawling and start running. A newborn must crawl first before walking, then running. The same applies to the journey to financial security. If you're starting from the scratch, the first step is to get a job, the next step is to save a sizeable proportion of your income.  After accumulating a reasonable amount in your savings, you can then put it in an investment vehicle that you fully understand, be it real estate, retail business, paper assets and so on. The important thing is to make sure that you have a deep understanding of the investment vehicle you're putting your money.  So saving is a very important step to financial security. I can remember my childhood days when we used to have saving challenge between me and my brother. It's a joyful moment when I open my Kolo and see how much I was able to put together. Nowadays, it's difficult, nay impossible to see young ones talk about saving. Every penny they get is used for sports betting. Everybody is thinking about how to use 100 naira to place a bet and win millions. This can be attributed to the get-rich-quick mindset of this age.
To be sincere, banks don't lend money to people without savings. Don't let all those online entrepreneurs and motivational speakers deceive you to believe that you can just walk into a bank and get a loan to fund your start up. Some years back, I went to a microfinance bank to get a loan for my start up. But their manager told me plainly that they don't fund business ideas. They only support existing businesses. He said that for me to qualify for a loan, I must have an account with them. Then after six months, they'll check my cashflow and then determine if I'm qualified for a loan. In other words, they're going to check my earnings and saving capacity within the six months probation period before they can lend me money. You see how the system works. So if you can't save, you can't get loans from banks. Don't let motivational speakers deceive you with examples of the Dangotes and Bill Gates of this world.
In summary, savings has not gone out of fashion. It's a very important step towards financial security. But one important thing is to allocate a part of your savings for investing. For those that are still saving, kudos to you and keep it up. For others that are yet to start, please put it into consideration. Gracias!!! 

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Red flags to watch for when investing

Financial fraudsters are getting innovative by the day, however with this format you can be steps ahead of them.  

Check their registration status.

As a matter of fact, all brokers, fund managers and investment advisers are required by law to register and get statutory licence from the Securities and Exchange Commission. It is very necessary that your fund manager be captured in the SEC database. This is to give you a platform to seek redress if you're not treated fairly by your fund manager. The SEC as a regulatory body also ensure that your money manager is a professional in the field of money management. Always visit the SEC  website and check if the fund being marketed to you is registered with the SEC. It would save you from "premium tears" thereafter.

 
Be skeptical of investment pitches that guarantee a certain spectacular return.

Truth be told apart from government backed securities such as treasury bills (or some short term money market instruments), there is no financial investment products that can give you guaranteed returns. Returns on financial investments are subject to some forces like interest rates, forex fluctuations, boom and burst cycle, political turmoil, and so on and so forth. These factors make financial investments a game of probabilities. So whenever a salesperson is telling you about a guaranteed return, you're about to part ways with your money.

Ignore the "everyone is doing it" story.

Don't believe claims that "everyone" is on the deal. There's this thing I noticed about human psychology. Human beings are wired to seek validation from social circles. They feel comfortable about what they want to do once there are other people within their social group that are doing the same thing. That is exactly how ponzi scheme thrive. Those fraudulent fund managers are experts in human psychology. Be wary of a sales pitch that focuses on how many people are investing, without telling you why the investment is sound.

Check for inconsistency. Have you been told to invest in a company's fund, then you discover that their account details bears the name of an entirely different company. Or at some points, you realize that the identity of their operators are changing. Once you notice inconsistency, it's time to pull out of the deal.

Don't be rushed.

If the salesperson tells you that the investment opportunities are limited, consider it a red flag. A legit investment will still be there tomorrow. 

Don't let your guards down, arm yourself with information. Safeguard your money by learning how to spot red flags.

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Stop asking this question

 

"I have some money in my account. What can I invest in?". I've gotten this question a number of times. In response, I used to ask,  what's your investment objective? The next thing is a blank expression. That's the reason why I want to talk a little bit about investment objective. I've discussed with a lot of people who have taken up investment products and every single time I ask them the question of why have you chosen this specific product, many people can't give me an answer. When investing, it is ideal to have a reason why we are putting our money away for future use. Now the question you need to ask yourself is; with this specific investment, what am I trying to achieve.
First of all, let me use the analogy of traveling to illustrate the concept of investment objective. When you want to travel, let's say for instance you want to move from Owerri to Lagos, there is a reason for the type of vehicle you choose to convey you to your destination. You may choose a space bus because of it's fast. Or you choose a luxury bus because you want comfort and relative safety. To some people, getting to their destination quickly is paramount, whereas to others, comfort and safety is sacrosanct. These are travelling objectives. The same thing applies to investing. When you are choosing investment vehicle, irrespective of the the asset class you want, it is necessary to understand what your own investment objective is. Remember that your investment objective is peculiar to you. Your investment objective and mine need not be the same. This is why you and I may not go for the same financial investment products. Specific financial products speak to specific investment objectives.

Now let's see the various investment objectives

Capital preservation. Basically, when you're talking about capital preservation you're looking at preserving the value of the money you want to put away. For instance, if you want to buy a car, maybe Toyota corolla whose retail price is 1.2 million naira. But you don't have the lump sum of money. You might choose to postpone the purchase till the end of the year in order to save enough money. However, there's this thing called inflation, which might push up the price of the car by the end of the year. In order not to allow inflation prevent you from buying the car by year end, you may start putting your savings into an investment vehicle that can beat inflation and preserve the value of your money. That is what capital preservation looks like.

Another investment objective is capital growth. When you're doing capital growth, you essentially want your money to double or triple (as the case may be) over some period of time. So, in this situation, you want your money to actually grow far above inflation. Generally, capital growth happens due to compound interest.

Another investment objective to consider is asset appreciation. Here, we're looking at a situation where properties appreciate in their retail value. For instance, if you bought a piece of land and in the next few years, the market value of that same piece of land is worth far higher than the purchase value. Note that not all properties appreciate in value.

Last but not the least is income generation. If you're the type that cannot wait for your investment to accumulate value over time, that is you want your returns immediately,  income generation is your investment objective. A good example is through rental income. Rental income can be realized from leasing pieces of land, residential apartments, office space, shopping complex. Others can be vehicles, machines, party equipments etc.

 

It is important to have all these option at heart in order not to be in a situation where you will be asking " I have some money in my account, what do I invest in?  Even if you've not started earning an income, probably you're still a student, this piece of information is for you. It's important to develop your financial aptitude now so that when you eventually start earning, your investment objective will be very clear to you. 

Note that this article is not an investment advice. If you need one, please consult a financial advisor registered with the SEC. 

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Why you should grab any dollar in sight!

 

There was a day I attended a business meeting with some folks somewhere. In the course of the meeting, the moderator gave us forms to open an account. In that form, there was an option to open a naira or dollar account. The moderator instructed us to tick the dollar box. I raised my hand in objection and simply asked, " what if I want to open a naira account? He cast a funny glance at me as if he wanted to ask me " have you been living under the rocks? I insisted on standing by the naira, though I later felt stupid. At that point, he made me to realize that the naira is dead and gone. Yes, if you trace the trajectory of our exchange rate regime from the 80s, you may want to doubt the capacity of the naira to function as a store of value. The exchange rate has increased by more than 5000% since 1986! Can you beat that?? Without further ado, let's see the reasons why the redemption of naira is a lost battle.
Firstly, our insatiable appetite for foreign goods: As ridiculous as it may sound, we prefer to buy fairly used foreign goods than brand new locally made alternative. Not too long ago, members of the National Assembly bought utility vehicles from Japan (Toyota) when we have an alternative in Nnewi (Innoson). We prefer parboiled rice from Thailand to local alternative in Abakaliki. We prefer Italian shoe and despise Aba shoes. The few industries we have prefer foreign inputs to local alternatives. The fuel that power our machines is refined abroad. The list is endless. Data released by the CBN shows that our trade deficit has been on the increase, even during the pandemic. I wonder how the naira can survive this onslaught. 
Secondly, the CBN have implemented policies that led to a systematic devaluation of the naira. I won't go into details here as I have another write up dedicated to this subject. Just know that the CBN, through their actions (and inaction) have successfully placed the naira on the path of annihilation.
Another factor is globalization. The world is a global village, so they say. International transactions are made just by clicking a button. A lot of people order for goods from abroad in the comfort of their room. Companies can even raise capital for business abroad. A good example is Jumia. They bypassed Nigeria Stock Exchange and went to New York Stock Exchange (NYSE) to float their shares. At the end of the day, US dollar wins.
In conclusion, I think the US dollars is the new bride in Nigeria, especially when it comes to financial assets. You might have noticed that most mutual funds in Nigeria now have dollar denominated funds.  US dollar deserves a place in your portfolio.

Don't take my write up for investment advice. Always consult a registered financial advisor. 

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Nigerian stocks will burn your fingers! See reasons..

Whenever the word investment is mentioned, the first thing that comes to mind is the stock market. Stocks simply refer to ownership stake in a company expressed in units known as shares. In ideal situation, it is the choice destination for capital meant for investment. There are three major ways through which people earn in shares. They are dividends, capital appreciation and short selling. If you've been putting down your money in the Nigerian stock market, you'd agree with me that the stock market (in the Nigerian context) is a legalized casino. Yes, thats what it is! Here are my reasons for giving the Nigerian stock market a casino tag:

Moribund economy
Everyone can agree with me that the Nigerian economy has been on a consistent downward spiral over the years. Economically, things has been going from bad to worse in the past two decades. The stock market mirrors the economy. Whenever you see a thriving stock market in the midst of a cascading economy, be rest assured that a bubble is building, and sooner than later, a catastrophic burst is on its way. That was exactly what happened in the 2007/2008 market crash. The stock market is as resilient as the economy. So a comatose macroeconomic environment must birth a comatose stock market. 

Hot money from foreign portfolio investors
Stocks rely heavily on foreign portfolio investors to drive demand up. Since former CBN Governor, Sanusi Lamido Sanusi allowed foreign investors to repatriate any portfolio investment into the country without restrictions, stocks have become heavily reliant on hot money to keep valuations high. Thus, when foreign investors exit, stocks suffer. They create a bubble when they enter our markets and leave bears to dominate when they exit, until they are ready to get back in again.

Recurring currency devaluation
Our economy is inextricably tied to oil exports. Consequently, the fluctuations in international oil price sends the Nigerian economy to a rollercoaster. What I mean here is that whenever the international oil price is high, there tend to be an upsurge in economic activity owing to the increase in fx revenue. But whenever oil price falls to an all time low, economic activity grinds to a halt. Due to forex scarcity to pay for our ever increasing imports, the CBN usually comes up with some drastic policies some of which includes currency devaluation. Once this happens, the market capitalization of all companies drop (in real value).

Liquidity crisis 
Simply put, liquidity refers to the presence of so many buyers and sellers with varieties of products in a market. This situation guarantees the buyer of a product that there's an available market whenever there's need to sell the product. In the stock market, this situation encourages many people to participate. The Nigerian stock market is far from being liquid.  We have relatively few participants in our capital market. (The market capitalization of the entire Nigerian stock market is less than 10% of the market capitalization of Apple Inc). This situation has made it very difficult to sell a stock profitably. Moreover, the availability of financial products is grossly inadequate. Though there's been promises to introduce financial derivatives into the market, it has remained promises till now. Short selling of shares is practically impossible at the moment. 

Absence of corporate governance
A considerable number of quoted companies in Nigeria lack the culture of corporate governance. Some of them engage in insider trading of their shares and other unscrupulous activities. Moreover they're poorly regulated. Some of the sharp practices that contributed to the market crash in 2008 has been swept under the carpet. Nobody was held accountable.

Conclusion
These are some of the reasons why the Nigerian stock market cannot be considered as a viable investment. However, there are possibilities of these situations improving as time goes on. But for now, the Nigerian stock market is not so different from a grand casino.  

Don't take this for investment advice. Always consult a registered financial advisor.  

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Don't put your money in Crowd1 without reading this!

 

There has been a number of multilevel marketing ventures springing up almost on a daily basis since the beginning of this year. I don't know whether to attribute this to the global economic drawback resulting from COVID-19 pandemic. Though I know a few of these MLM ventures were existing before now, but they picked momentum this year.  Some of them are Crowd1, Norland, Daily income stores, Superlife, NRI, just to mention a few. As I'm typing this, more are still springing up.
Don't get me wrong, multilevel marketing is a viable business model, but there's a thin line between multilevel marketing and pyramid scheme. And in the Nigerian context, many people engage in pyramid scheme in the guise of multilevel marketing. Times are hard, things are tough.  This is the reason why it is very important to do your due diligence before committing your hard earned money into any money making venture. In the following series of write up, I'll do a quick review of these MLMs mentioned above so that those of us throwing our money into these ventures will get a broad understanding of what we're doing. Let's start with Crowd1.

Crowd1
According to the promoters, Crowd1 is essentially an online opportunity that offers shares that you can purchase and earn from building a network of investing members shares as well (though they don't call it shares, they call it "owners right"). 

Location
It is not clear. According to the promoters, Crowd1 started in Sweden, but have their headquarters in Madrid Spain. However, a check on their website proved otherwise. They have their headquarters in the United Arab Emirates.

Ownership (shareholders) structure:
It is mired in secrecy( or rather confusion ). Depending on the promoter you ask, you'll get different answers. Some of them refer to Johan Stael von Holstein as the leader. Others regard Stelios Piskopianos as the leader. Some still refer to Jonas Werner as the leader. However, a check on their website didn't disclose anything about the shareholders of crowd1.

What products are they offering:
The question of whether crowd1 sells products to customers other than its members is important. If a company has a direct sale of a product as its main purpose, it is in most countries, considered legal MLM. If the company's main business is the recruitment of new members that sends money up the chain, it is considered a pyramid scheme - something that is illegal in most countries. In Crowd1,they give very scanty information about their products. They're in the business of selling "educational packages. They're also affiliated to some online gaming and social media firms. According to the promoters, as these firms are making money, Crowd1 is making money too. However, I've never seen the promoters encouraging members to promote the games of their affiliated companies or play those games. All they do is to encourage members to bring in other people into the network, with promises of mouth watering benefits. If you ask me, they make money as long as others are joining the network, who must fork out at least €100 (50,000 naira).

Countries where Crowd1 has been banned or under investigation
Crowd1 was banned in Namibia in February 2020, and countries including Burundi, Paraguay, the Philippines and New Zealand have cautioned against it. In South Africa, it is under investigation by the South Africa Reserve Bank's prudential authority. The Reserve Bank said that it never issued a license to the scheme for any financial product, financial service or market infrastructure. The bank also warned customers against investing with unregulated entities and to remain vigilant through conducting due diligent assessments.
In Namibia, the Central Bank authority stated thus " Crowd1 does not sell material products and does not provide any service of significant value. The primary source of income of crowd1 is the sale of membership packages to new members. It is clear that the concept is not sustainable and will result in people, especially those at the bottom of the scheme, loosing their money".
In Burundi, authorities launched an investigation against crowd1 in January this year after arresting 17 people involved and affiliated with the network, the African News Agency reports. However, it is unclear how this investigation went.
In Paraguay, the country's financial supervisory authority has issued a warning regarding crowd1. In addition, the company's offer has been defined as an unregistered security, which means that people who market the company's services can be fined or receive up to three years in prison. 

Conclusion
From the foregoing, it is obvious that Crowd1 bears all the hallmarks of a pyramid scheme. I'm not saying that it's bad, but please be careful while dealing with them, especially as we're getting close to December ( remember MMM during December 2017). I know most people already in the scheme will say " but we're making money". That's true. MMM equally made people millionaires. However, it ended with sour taste in their mouth. Any business model that prides itself with making people millionaires without solving a problem is not worth your time.  A word is enough for the wise!  Let me know your thoughts.... 

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How to remain illiterate after graduation

As a little child, you’re a curious being, you’re an experimental scientist. You wanted to learn, you wanted to research, you wanted to know. You love education. But one day, you were taken to school and a teacher started telling you that what education means is for you to cram what a teacher teaches you and write it back to her during a test or exam. By the time you’re done with schooling, you honestly think that you’re educated. SCAM!!
Sometime ago, I watched a TV show where Americans were asked to recall any books they read, just any book. Out of about 10 persons surveyed on the street, I think only one of them was able to remember the name of a book he read. Americans really tried. Here in Nigeria, only one out of a thousand ever read a book once they leave school. Somehow, when people go to the university and graduate with a degree, something in them tell them that they are educated, so if you’re educated why bother reading books any longer.
Certificates can really deceive you.
At some point, I started wondering; why do we judge people by the decorated paper they are carrying. Why do we think someone is smart or educated simply because he has a degree which is a mere paper. I believe so strongly that the number one evil in our educational system is the certificate or degree. Because people are given this decorated paper, they somehow believe that education is in the paper. The implication of this is that students in school study not because thay want to learn but because they want the paper, and immediately after they get the paper, that’s the end of education. If you think this isn’t true answer this; why is it that most people stop reading immediatetly after they leave school? The reason is that they think they’re already educated since they have the degree.
The true education.
For more than one decade now, I believe that school doesn’t give education. Instead school indoctrinates. School teaches you what the industrialists want you to know. School teaches you what the politicians want you to be. Let me explain; there was no public school in the world for the most of human existence. What we know as public school today is less than 2000 years and the foundation is greatly questionable. What we know as public education was greatly influenced by 3 powers; the spiritual leaders, the industrialists and the politicians. And as you may guess, the industrialists had the last laugh because they have a lot of money to influence the system. Do you wonder why you are programmed to be an employee? Do you wonder why you are only encouraged to be like everyone and do what everyone does? Well, your education was never important to the founding fathers of the school system. What they want to achieve was to make you a labourer, and as a labourer, you don’t need to be creative or even educated. Just know how to obey orders.
Degree and the jobs
Until recent time, the university degree is required by every employer on the planet. But that’s changing so fast.  For example, I’ve been in a company where nobody was ever employed because of their degree. Education to me is about self development. Education is all about skills. Education is all about what you know and what you can do with what you know. Education has nothing to do with the degree or certificate. I believe so strongly that one of the ways we can have a better education system is by destroying every certificates in our schools. If students know that the employers would judge them by what they know and by the solution they can provide, they’ll get the true education, and even after they get the job, they will continue getting education because they know that they must increase their value before an employer promotes them. I think that trend has started already.
According to Glassdoor, most fortune 500 companies like Google, Apple, Starbucks, Microsoft etc no longer employ on the basis of certification. This trend is gaining momentum worldwide. Come to think of it, does the degree of anyone solve problems in the workplace? Hell no! What solve the problem are people’s brains and this requires constant education.
Education is not the degree, neither is it the university you attended. Education is learning and knowing. It is what you know and the problems you can solve with what you know. You can’t stop getting education because you can’t know all you have to know about life. If you stop learning after school, you’re an illiterate! If the last time you read a book was the time you had exam, you’re a stark illiterate!
Education outside the walls
Don’t be decieved that education lives inside the four walls of the school. The real education is outside the wall. Your observation of the world around you, your curiosity to question things and find answer, your eagerness to know about money, marriage, relationships, humans, leadership and life in general , that’s education.
Which book are you reading now? Which book did you read last month? Which audio book do you have on your phone? How many educative blogs do you visit? The school programmed you to believe that once you have a degree, you’re educated. But the truth is that the day you stop getting education is the day your brain cells start shrinking. You ought to be improving your mind everyday. Education is a constant learning and improvement of your mind.

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