A Senior Lecturer in Finance at the University of Ghana Business School, Dr Elikplimi Agbloyor is advising investors to measure risks when seeking to invest, especially after Ghana’s financial sector cleanup.
His recommendation came in a presentation he made at Tesah Capital’s Investment Dialogue held in Accra on April 7, 2021.
“Indeed when you invest, the expectation is to earn some returns,” he said. “But investing also comes with risk. What we can do is try to reduce risk and to manage risk when we invest.”
The senior lecturer revealed that people do not understand that risk drives returns, pointing out that every investor should learn about the relationship between risks and returns.
“What actually determines the returns you receive when you invest is the kind of risk that you take,” he said. “So if you take impossible risks, then you are going to get impossible returns and those are returns that will not likely materialise.”
As every investment involves some degree of risk, Dr Agbloyor further advised that going forward after the financial sector clean up, investors should pose relevant questions to their fund managers.
Questions that need to be asked of fund managers, he said, include: ‘Where is my money going? How does the fund manager manage risk? How can an investor get access to information about their investments?’
Dr Agbloyor also suggested that investors should check whether institutions presenting investment opportunities are licensed by the Securities and Exchange Commission and whether the fund management firm has issues with the regulator.
Additional tips for investors include consulting a finance professional to examine whether the investment firm has good corporate governance, whether the fund manager has experience and the right qualifications, and to check the firm’s historical performance on how it gained returns to give a clue on how and where to invest.
Moreover, he proposed that consulting firms should look to publish rankings of mutual funds in Ghana that takes into account fund managers’ risk adjusted returns. This, he said, will include not only the returns but also the risk the manager took to achieve those returns.
“I think that will be very exciting and that will make it easier for the ordinary investor to check the ranking of a fund that they want to invest in,” Dr Agbloyor explained.
Tesah Capital’s Investment Dialogue was held to open a discussion on how to invest in the market after the financial sector clean-up which saw the revocation of the licenses of investment management and advisory firms, including 347 microfinance companies and 23 savings and loans companies.
Managing Director of Tesah Capital, Eugenia Basheer, said the Investment Dialogue series has been designed to disseminate knowledge about investment opportunities in Ghana and help the investing public make the right decisions based on appropriate information and research.
She urged Ghanaians to adopt the habit of investing to secure a better financial future for themselves and their dependents.
“Not investing means losing great potential income, it means missing the chance to probably acquire that house, that additional educational qualification, that secured retirement or the chance to leave a legacy of wealth for your generations,” she said.
She added: “Investments are the only proven way in which you can sit back and watch your money work for you. Investing has not lost its benefits. I want to urge and encourage you, that though you may have fallen heavily off that horse, get right back on it and start investing again, but this time, check the type of horse you choose and which stable it is from, check the bridle, check the saddle – meaning know what you want, understand the opportunities and risks on the market, and get the right advice from the right source. Whatever you do, do not stop investing and if you have never invested, do not fear to start now.”
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