Last week, we discussed Your Busines And The Law; today we will be talking about Personal Investment Opportunities For Small Business Owners.
My name is Oluwatosin Olaseinde, a chartered accountant with 9 years of experience across accounting, taxation, financial management and audit. I also co-own a small-medium enterprise in the manufacturing sector.
Congratulations! You have started your business. How then do you save and manage your personal investment separate from the company?
At the end of the day, your company is a different entity from yourself. I understand the excitement of owning a company, pumping funds into it and getting the returns. But at the same time, you need to separate your personal investment from the company in order to look out for yourself. In the event the company fails, the entire investment is gone. A backup plan is needed; something separate from your company and only for you. In case there is a loan or any other liability, the creditors (lenders, suppliers, taxman, etc.) will go after the company and its resources. You will have no more access to those.
What do we do after identifying that this separation of assets is needed? How do we go about it?
One option is savings. Basically, putting money in the bank, uncommitted, and can be accessed easily. About 3.5 and 4% interest on savings is the norm, but some banks give higher rates. An example is Alert by Wema Bank and Standard Chartered which both give 10% interest without commitments or fixing. So if you save N100,000 in Alert or StanChart, you are guaranteed N10,000 extra at the end of the year. Would I go for the savings option? No. I wouldn’t like to go for the least option. My goal is always to maximize my money yield.
I would go for other options. Like fixed deposits. With this form, you won’t withdraw an amount of money fixed (invested) in a bank for a particular duration of time. Different banks give different rate. Stanbic IBTC offers 12% for fixed deposits and there is no minimum amount of money needed for fixing. (There is no minimum needed for savings too.) Higher interest rates can even be got from organizations like RenMoney Micro Finance Bank Ltd. Deposits with RenMoney is at up to 24% interest, but with a minimum amount of N2,000,000. Would you want to fix N2 million or invest that in your business? Those are the decisions you need to make yourself.
Other options still. Mutual funds. This can sound confusing, but it simply is giving your money to an expert fund manager to make investment (personal investment) decisions on your behalf. Some of the places he will invest your money in are equities, T-bills, etc. Mutual funds yield between 17% and 18% (pretty high). This is an option I can go for because it is an amount that is similar to the inflation rate (currently at 15.9%).
In deciding whether to save or invest, you should always be watching out for the inflation rate. Inflation shows the purchasing power of your money. If the money is losing 15.9% of its purchasing power, you need to be replenishing that rate of loss through your saving and investment. Mutual funds are my favourite form of personal investment.
Treasury bills (T-bills). These give you your interests upfront. There are short term and long term investments. The longer the term is the more attractive rates you get, and vice versa. If you invest N100,000 at 15%, you get N15,000 upfront and the principal at the end of the term of investment. T-bills are safe in the sense that your money is guaranteed. (Mutual funds can have its capital reduced at the end of the day and one should always go with trusted companies.)
Equities. This means you are investing for the long term. I wouldn’t advise that you go into the market if you are not a trader. I invested in UBA stocks for about N4.00 per share in 2015, but right now the same shares are about N9.00 each. It is for the long term, something I might bequeath to my kids. There aren’t many investment choices that will give more than 100% returns.
There are also other personal investment opportunities out there. Example, in real estate. Land in the outskirts can go for a certain amount now, but after a year is valued at double the original purchasing price.
There is a certain savings app that one can even use. It gives a certain amount of interest after investing. However, one needs to be careful to know the terms they offer. Advice from friends in the financial sector is also important in all.
We go to work and put in so much effort to earn money. Don’t let this money just sit in the bank. Let it work for you.
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This was live at ReDahlia Workspaces, 43B Emina Crescent, Off Toyin Street, Ikeja.
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