By Ekanem Etim, CFA
As the presidential elections in Nigeria fast approach, questions about the potential impact of the elections on all spheres of our daily lives continually arise in our minds.
Nigerians are increasingly participating in the economic discourse, as the rapidly growing, young, curious and fickle population eagerly awaits its fate. A common conversation is about how the policies of the next government will affect the economy and living conditions.
In the wake of these discussions, investors are wondering about the best investment strategies to adopt. Decisions to buy, sell or hold assets; currency pairs and other financial assets top the list. Speculation about candidates’ personalities, past performances and political interests can lead to short-term market movements immediately after the election results are announced.
In 2015, the Nigerian stock market experienced a 10-day period of gains on news of Buhari’s victory due to possible anti-corruption interventions.
Meanwhile, in 2019, Buhari’s re-election was met with market pessimism. So the question remains “should your investment strategy change in an election year”?
Investors should approach investing from a total portfolio perspective and create a realistic plan to follow over the long term. This means that your portfolio must be managed holistically in order to achieve the goals you have set for yourself.
First, articulate the investment goals of your portfolio. For individuals, this may include retirement plans, buying a home or raising children. Some goals may be short term in nature while others will have a longer time horizon. You can also view your security, revenue, and growth goals. Safety objectives ensure that you preserve your initial capital against potential losses; this tends to be very low risk in nature. Income goals are more aggressive and ensure you have income, while growth goals are the most aggressive and aim to build wealth over time.
Then, build a personalized plan to help you achieve your goals, keeping in mind your ability to take risks, the projected time horizon, and any unique circumstances such as your family situation. Many factors affect your ability to take risks, age – the younger you are, the greater your ability to take risks since your portfolio apparently has more time to recover from any losses. Likewise, the larger your asset base, the greater your ability to absorb losses and therefore, the greater your ability to take risk.
The investment plan must allocate your portfolio to the different asset classes chosen; financial assets – stocks, bonds, etc. and alternative assets such as real estate. You must maintain the discipline to strictly follow your investment plan and approach it without feelings. Market cycles will fluctuate with changes in politics, economic conditions and other events during your investment horizon. During this time, try to stick to your investment plan as this is a long-term strategy. Therefore, elections should not influence your long-term investment strategy.
Ekanem Etim is Assistant Vice President at DLM Advisory, a subsidiary of DLM Capital Group and can be contacted via [email protected]