Maximising financial returns requires taking advantage of opportunities that present themselves on a regular basis. But it also involves avoiding the pitfalls that unfortunately exist in the financial industry. In this post we will provide you some of the most important elements that you must consider when deciding what to invest in.
The first thing to look out for is whether the institution you plan to invest in has the appropriate license. You can find out whether an institution is licensed by looking at the list of firms licensed by the Securities and Exchange Commission (SEC) and those licensed by the Bank of Ghana (BoG).
The returns being offered by a financial institution is another thing to be wary of. A basic way of evaluating whether returns are realistic is by comparing the returns offered to the interest rates on government securities such as treasury bills, notes and bonds. If the returns offered are significantly higher, then you should investigate further.
Another thing to beware of is confusing coincidence for correlation. For example, since 1992 anytime the Democratic Party in the USA had won a presidential election, the National Democratic Congress had also won in Ghana. However, this trend was only a coincidence as evidenced by what just happened in the 2020 elections. In the same way, the phenomenon of any two financial assets moving in tandem should always be studied deeper to separate a genuine relationship from a coincidental co-movement before an investment is made based on that phenomenon.
Simplistic conclusions sometimes can be drawn when not enough factors are considered in analysing market outcomes. For example, one can end up attributing a lot of returns in the Ghanaian market this year to the impact of the COVID-19 pandemic. But this analysis is incomplete without thinking of the counterfactual, that is, what would have happened if the pandemic had not occurred? What other factors would have been considered and how do we know that those factors played no role in the market outcome? It is important not to make investment decisions without considering counterfactuals in your analysis.
Michael Batnick, a popular American financial writer once said ‘money earned by luck is indistinguishable from money earned by skill.’ This cannot be overemphasised. An impressive one-time performance from a fund manager does not mean that they can continue to put up such performances. It is essential that you thoroughly research the track record of whatever financial institution you plan to invest with.
At IC for example, we have been delivering exceptional results for 10 years and have remained unblemished even in the midst of the largest restructuring of the banking and finance sector in this country’s history. This gives our clients total confidence to invest with us.
As you work hard for your money, it is important that you protect the fruits of your labour by dedicating adequate time to ensuring that you invest in legitimate financial assets with a reliable and competent financial institution. We hope that the information we have provided in this article will help you in making the right decisions. Thank you for reading.