Welcome to another week of financial learning. I believe we are all well and staying safe under these “abnormal” Covid-19 times!
In my last article, I stressed the four key conditions that need to be tackled when we decide on investing our hard-earned savings. The factors were the safety of investment, tenure of the investment, convertibility of the investment to cash as well as returns on the invested fund. The focus last week, however, was on following after realistic returns.
Today I will like to take a different drift. Investment in our part of the world is sadly seen by the majority of people as the preserve of the aged. It is widely believed that one ought to have fun whiles young and only prepare “retirement” investment when we attain the age of 50 years and beyond.
Matt Duczemiski in his article titled “Why You Should Start Investing As Early As Possible” had this to say about investing early.
“When you’re young and money is scarce, saving for retirement is probably the last thing on your mind. You might assume that once you get your dream job, you’ll be able to make up for a lost time (and money), but the truth is you’ll end up spending more to save less in the long run.”
Certified Public Accountant Micah Fraim illustrated the importance of investing in a savings account from a young age.
In an infographic on saving early demonstrated how sacrificing beer and pizza money during your college years will yield over $100,000 more in returns on investment throughout a lifetime compared to the savings account of someone who started investing in his late twenties.
I must admit that narrative is changing with my generation. The pace of change is however very slow. The first asset aim of most University graduates when they gain full employment is to buy their dream car. The rich buy their dream cars after accumulating enough wealth. The poor buy their dream car with their first jackpot!
Starting early helps you to adjust your spending life even whiles on retirement.
Young people should, therefore, seize the opportunity of free financial education to commit to continuous and consistent investments in treasury bills, fixed deposits, real estates, transport business, shares and bonds to mention few.
Whiles, I admit that starting early is ideal, starting late is equally good. Our elders said, better late than never.
Billionaire Warren Buffett is one of the richest investors in the world, with a net worth that seems to grow by the day. He wasn’t always rich as he is today. About 99.7 per cent of his immense wealth was earned after his 52nd birthday.
This narrative doesn’t mean Buffett, 89, was a late bloomer in any sense. He started his financial path toward wealth at a very young age and built his fortune slowly over the years, decade by decade — something we can all do with a little perseverance and a lot of hard work. Always remember wealth creation is a gradual process and not an event!
Kindly permit me to share an educative story by Uma Shashikant in one of his articles about how we can start investing even in our old age.
The story is about a reader of his column, who used to write emails and share his stories for a long time.
He liked to remain anonymous, so we will call him Uncleji.
He was 89 years old when he passed away last week, leaving behind a portfolio of wealth that is a classic case study on a bequest to the next generation.
He had told me that I could write his story only after his time.
Uncleji worked for the central government and retired to his two-bedroom flat in the suburbs of a big city.
He was your quintessential uncle next door with a simple routine that included taking morning walks, helping with the household chores, meeting friends for chai and chat, and attending social ceremonies to feel connected.
He mostly read newspapers and magazines and watched some television, pursuing nothing new after retirement.
He often told me that there was no story in his life, and I always disagreed.
He excelled in keeping things in order and had a great penchant for paperwork, processes and filing. It was an offshoot of his work at the government, where the paper trail was important, and reading the fine print was necessary.
He read through all the mails that he got, and many of our conversations were about the information disclosures that came with his investments.
Uncleji did not dabble in stocks or buy based on tips.
He was a conservative investor who believed that the schemes of the post office were the best choice for a retired person.
That was to change in 2006 when he began to invest in mutual funds. That was a tumultuous year, with the cracks in the US housing markets already beginning to show. The Sensex was around 10,000 (Nifty around 2,600).
He divided his money into three portions. One was for his use; one was for emergencies and unexpected events, and one was for passing on.
We agreed that the amount he wanted to pass on could take on the long-term view and get invested in an equity fund.
The one he kept for unexpected events was invested in a balanced fund, which he could draw upon if needed, and could grow if he did not touch it. The portion for his use remained in the post office and later in bank deposits.
He invested the last portion in small instalments, putting the money in with glee when the markets fell. For a first-timer, he was courageous.
He told me that the money was for his grandson who was just 20 at that time. That boy would live to see the markets soar, so let’s take a bargain, he said. Uncleji’s approach assured me that clarity about end-use significantly impacts how an investment decision is made.
He made every investment for his children or grandchildren in their name. In the case of his grandchildren, he went through the entire process of third-party cheque issuance, opening of a folio in the name of a minor, and made sure that the investment was in their names.
He invested for his two children, but he made them joint second holders in investments he managed.
He would open the account or folio with a small minimum amount. That required the second joint holder’s signatures. Then he kept adding to that folio as he desired, operating as the first holder, and invested, received information and updates, and grew that folio. Every year, he ensured that money kept moving from his portion of the corpus, into the portions he kept for his children.
Uncleji was also keen about fair play and made sure that the two folios he had for his children were identical in their holdings so that their value would always be the same. By 2011, he was already very comfortable with what he was doing, logging in online to check the folios, using Internet banking to transfer money, and managing the tax reporting for all his investment activities.
With the Nifty at 11,000 now, Uncleji’s investments have grown at 13% compounded per year, over 12 years. Not a mean achievement at all.
This approach means that now on his death, all that his children have to do is submit a copy of the death certificate to the mutual fund and ask for the first holder’s name to be removed from the folio. All the investments that Uncleji made will become the property of the joint holders, his children, with just this simple process. No notarization, no NOC, and no need for multiple trips to the bank or other offices. He ensured that his bank deposits and investments were similarly simplified.
When his post office accounts matured, he transferred the money to mutual funds and bank deposits. He was of the view that his money should be easy to access when he was gone.
He always kept a single paper list of the investments, complete with all the details about the folio numbers, names and such details.
He updated the value every year and placed that paper in the file.
Uncleji gave away whatever he desired in his lifetime. He felt that his children were still too young to donate, and ensured that his favourite religious institutions, his old school, his faithful maid and driver, were all given a yearly donation or gift.
The house that he held in his name for the longest time, he registered in the name of his son and asked the son to transfer an amount equal to half the value of the property to his daughter, on the very date of registration.
His children lived elsewhere and he lived in that house until his last. He divided his late wife’s jewels between the children and kept no gold for himself.
There is a lot that can be achieved with clarity of purpose and organisation. Uncleji used the time he had after retirement to put every single paper and investment in his possession, in impeccable order.
He read, asked questions, took the time to argue, differ and finally understand how investments worked. He began when he was 77 years old, but in less than five years was completely in charge and left behind a fortune for his heirs.
Those who think it is too late to invest, too complex to manage money, too difficult to bequeath, or too taxing to handle paperwork, should be inspired by Uncleji’s story.
Wake from your excuses and start investing today no matter how small the return is. With time, the little drops of water will become a mighty Ocean.
I wish everyone a wonderful and memorable week!
Patrick Baah Abankwa is a chartered banker with over 6 years’ experience in main stream banking having worked in various capacities. He is currently the Business Development and Corporate Affairs Manager at the Chartered Institute of Bankers, Ghana.
He has been a qualified member of the Chartered Institute of Bankers, Ghana with a good membership standing since the year 2013.
He also holds EMBA and BA from Kwame Nkrumah University of Science, Technology, and the University of Ghana respectively.
Patrick is the originator of the daily epistle dubbed “Savings Tip of the Day” which has been running for over a year on WhatsApp and Facebook.
Patrick has also been teaching on the Topics Savings, Investment and Financial Independence for over 2 years and a research fellow for ILAPI Ghana. He runs a financial channel on Youtube by name “Patrick TV Gh” and has appeared a couple of times on the business segment of TV3 News 360.
Patrick is into youth facilitation and counselling. He can be contacted via firstname.lastname@example.org and or 0243984492.
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