Understand Investment Risks Before Investing
Head of Client Coverage at Stanbic Investment Management Services (SIMS), Desmond Bredu, has emphasized the importance of understanding investment risks before investing. He made this statement at an engagement with congregants at the Tema Community 1 Church of Pentecost under the theme, ‘Repositioning the Local Church in our Finances for Maximum Impact.’
Speaking on the topic ‘Managing Your Finances for Maximum Impact’, Desmond Bredu advised the congregation to ensure that they understand clearly understand the risk involved in an investment vehicle before committing to it.
He said, “Risk is present all around us and permeates our very fabric of life. It is essential to understand that every investment you undertake has a certain degree of it. It is up to you to ensure that before you put your money into any form of investment (traditional or alternative), you are fully aware of and appreciate the risk involved. If it is more than your risk tolerance, you can decide not to invest, but if it is within your threshold, you can go ahead and invest.”
He added that “there are two major types of risks. There is a systematic risk that is inherent to the entire market. This means it affects everyone or all the companies in a given market segment or the total market. Examples are inflation risk, interest rate risk, and political risk. Unsystematic risks, as the name suggests, are company, sector, or industry-specific and do not necessarily affect everyone in the market. For instance, the risks you face when investing in farming differ from those faced by a transport service owner. Examples are liquidity risk, credit risk, and concentration risk. These risks may be reduced through diversification- i.e., “not keeping all your eggs in one basket”. In the current economic situation, we find ourselves in as a country; it is important that you understand these types of risks before you invest so that you do not end up mismanaging your finances.”
Desmond Bredu further explained that now more than ever, it has become prudent that we manage our finances effectively for maximum impact.
“Last year, we all saw how the prices of goods and services increased as we went through an economic crisis. The only way to safeguard and protect yourself against unforeseen economic hardships is by properly managing your finances to ensure maximum impact. There are a lot of things outside your control, and it is important to have a handle on the ones you can control. To do this effectively, there are a lot of different practices that you need to adopt. These include resetting your goals, controlling your borrowing, and earning more. Review your budget, save where you can, and invest consistently. It is important that you put in the work to ensure that in light of any economic crisis, you will be cushioned against the unpleasant effects,” he said.
SIMS is an asset management and advisory firm licensed by the Securities and Exchange Commission and registered with the National Pensions Regulatory Authority as a pension fund manager. SIMS’s focus is to help clients plan for their future and provide insights and unparalleled expert advice that enables them to achieve their lifetime financial goals. With over 15 years of investment management and advisory services experience in the Ghanaian financial market, SIMS is one of Ghana’s largest fund managers with world-class money management expertise.