Retirement Planning - Investment Options (II)

Last week we defined what a private investment plan is and also introduced investment principles and the two broad types of investments. We need to know and understand the many possible investment options available so we can choose wisely and diversify our portfolio towards maximizing the returns we could make while minimising our risks. Today we will begin discussions on some ‘active’ investments.

Active Investments: For the avoidance of doubt, all investment types require some level of monitoring and management. However, what we define as active investments do, particularly, require close supervision and management. Examples of active investments are:

Enterprises and Businesses: One of the great ways we could create value and in the process make money through profits and capital appreciation is by starting some business as entrepreneurs or investing in going concerns for which some good level of involvement through close monitoring, supervision, control and management will be required of us. The need for involvement is crucially so in our country where, sadly, over the last three decades we have lost substantial trust in each other. Many innocent people with good intentions, from both our private and public sectors, started or invested in some business that is supposed to be run by some cousin, friend, or the villagers where a farm may be situated, only to be made to suffer substantial avoidable losses arising from outright fraud perpetrated by those entrusted to run the business. Of course, exceptions are out there but they are few and far in between. Every one of us, and our society at large, is a loser to this and we need to re-educate ourselves and each other on the need to be trustworthy and competent in discharging our responsibilities when we partner with others in business in any shape or form. So, if you wish to start or invest in any business in our environment, you must be able to provide the time to be part of the management or Board with strong supervisory and control capacities.

If you wish to go into business, there are several factors to consider. These may include your experiences, competence, interests, relationships, economic opportunities, growth prospects, etc. My series, the Entrepreneur, which ran in the Daily Trust newspaper, or my book, Mindful Entrepreneurship, provide details on how to start and run a successful business in our environment.

Real Estate: Another ‘active’ investment that one can consider is the acquisition and development of land and landed property. The options are many and varied. Land in appropriate city locations can be acquired and developed into residences, offices, shopping malls, markets, warehouses, etc. as may be approved by the municipal authorities. Lands in rural locations can be developed into modern farms for agriculture, aquaculture, scrapyards, etc. As I mentioned in the past, my late wise grandfather would always encourage anyone to invest in real estate. He would tell anyone who cared to listen that land would continue to be of value because ‘… Adam was created out of it; We grow our food on it; We build our houses on it; And when we die we will be buried in it!’ With the increasing population and the need for more goods and services, the pressure on and value of land and landed property can only be expected to continue to increase and grow respectively.

I consider real estate as an active investment because you need to be on top of it in all stages from identifying locations to acquisition, development and managing it as a business.

Commodities: Commodities such as agricultural raw materials and precious metals can offer investment opportunities for the alert and discerning. There are four common classes of investible commodities. These are:

In our environment, raw agricultural materials are quite popular. Curiously but sadly, we seem to focus more on trading and very little on mechanised farming and industrial processing. Whilst trading and merchandising are a composite of the integrated value chain, we need more educated people to go into more production and higher value-add post-harvest processing.

In our times, we could purchase and own commodities without even seeing or holding them. To do this successfully though, we need to study the particular commodity, the market, the dynamic economic risks, investment techniques, etc. On that basis, I consider investment in the production, processing and trading of commodities as an active investment.

Investments should offer opportunities to generate cash flow, make money and gain capital appreciation if done right. But they are, also, fraught with different types and quantum of risks that could lead to losses. Our claim to making money through investments is to ensure that we create desired value by studying and understanding what we need to do and actually doing the right things.

I would say active investments are appropriate for those in the private and public sectors that would make out the time for required supervision and management. In both cases though, you will need to be on the right side of the law by making sure you do not breach any terms and conditions of your employment.

Next week we will take up a few passive investment options.

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