Please note: I am not a certified financial advisor in Ghana nor anywhere else. If you’re serious about investing your money, please seek a qualified advisor.
Ok, say you’ve somehow saved $50,000 or even $100,000. Let’s say you can’t take the money out of the country. What do you do with those funds right now?
From living in the US, one of the most boring ways to hold your money is to buy US Treasury Bills and Notes. As people say, they are backed by the full-fledged support of the US government. Let’s see, from Bloomberg, the 12-month (annual) yield is 0.10% and the 10-year yield is 2.42%. Unfortunately, if you’re Ghanaian, you can’t buy these bonds from Ghana.
So, you might think that buying Ghanaian Treasuries would offer a similar level of security. After all, the interest rate on the 12-month note is 22.5%. Oh, but these things are denominated in cedis. F***! Buy these and you become another cedi currency speculator. To date, the cedi has lost more than half of its value. If you bought this bill, then you would have lost 50 percent of its value in dollar terms — so far this year — and made 22.5%. In other words, year-to-date you would be down -27 percent.
In the US, buying stocks via mutual funds is almost a requirement in most people’s retirement accounts. For many average Americans, however, the stock market sometimes feels like entering a casino. Most people don’t have time to study the fundamentals of a company; and yet, they are told that if they hold for the long-term, everything will be all right because stocks tend to go up — over the long-term. I’m one of those people who like learning about individual companies so I’m somewhat biased and favor stocks as a way of investing.
Whether you believe the stock market is like a casino, you may feel encouraged to know that the US Securities and Exchange Commission tries to maintain a level-playing field for all American investors. In other words, that means the regulators try to catch people out to game the system, e.g. fraudsters, insider traders. People like Bernie Madoff and Rajaratnam of the Galleon Group eventually get caught and put in jail. I’ve heard of people who are not even that important who were caught for $50K in insider trading profits. (Seriously!) Anyways, the point is the system tries to be honest and those who seek to undermine it should be careful.
In Ghana, I was told something like “This is Africa (T-I-A)”. Remember what I wrote about people driving against a one-way sign? Well, that goes for the stock market, too. In the 3+ years I’ve lived here, I’ve never seen an insider trading case brought before the courts reported in the papers. Maybe the Ghanaian SEC likes to bring their cases quietly… or maybe insider trading is rampant. Who knows?
A second thing to be concerned about is the quality of the financial information provided. Again T-I-A. I’ve heard too many rumors of companies and officials commingling personal and business funds that I just don’t trust the numbers used. Furthermore, there are no stiff penalties for companies not reporting their quarterly and/or annual numbers on time. Publicly-traded companies seem to report their numbers on their own schedule. Some are better than others.
Lastly, again, Ghanaian stocks are denominated in cedis. Again, you have to worry about currency risk.
Most people in the US buy bond exposure through bond funds offered by the experts, e.g. PIMCO, Black Rock, and some wealthy investors buy them individually through their broker. In Ghana, I honestly don’t know too much about what corporate bonds are offered. Again, buying Ghanaian corporate bonds exposure you to currency risk.
There is a bit of a gray area out there for people seeking higher yields but don’t want to put their money in stocks or bonds. You can also lend your money to a microfinance company.
The Grameen Bank of India made “microfinance” sound cool and altruistic. Perhaps lending money in small amount ($50) to women in India works by helping them transition from poverty to middle class through entrepreneurship, but in Ghana microfinance is synonymous is usury.
That leaves one obvious asset class: real estate. If you’re simply looking for a store of value, I would suggest buying an existing property, then calculating the rental yield (Annual rent/purchase price) Most properties in Ghana are purchased with 100% cash. Generally, buying an existing property reduces the title risk inherent in buying and building on purchased land. Unlike most other assets, rents are quoted in dollars.
Your money is somewhat protected because all of the items required to build a house must be imported. Other people should value your property at least equal to replacement cost.
If you don’t buy an existing property, then your alternative is to buy to-be-build properties. With well-known companies that have track records, then the risk that they won’t finish (on time) is diminished. On the other hand, if you go with a newer developer, then you run the risk that the project is not completed on time — or worse, doesn’t get completed at all. Good luck trying to get your money back!
Real estate’s other advantage is that it’s something “real”. In this part of the world, it’s sometimes hard to figure out who to trust. Thus, if you go through the normal channels with contracts and attorneys, then you can be relatively sure that you’ll get something in exchange for your money.