THOUGHT OF THE WEEK
UNDERSTANDING ASSET CLASSES AND INVESTMENT RISK (PART 1)
Recent developments in the investment sector has highlighted the need for investors to understand the basics of different asset classes and risk associated with each asset class. The first step in understanding investments is learning to distinguish the various asset class and associated risk. By understanding the asset classes investors will be in a position to ask the right questions and make an informed investment decision. Below are some asset classes and the
associated relative risk;
? Cash: Cash deposit at bank is the most common and understandable investments for many. Cash is one of the safest investments for one to keep. Cash at bank can easily be exchanged for goods and services. On the downside, interest earned on cash in savings account in banks is mostly below inflation. Over time, investments in cash kept in savings accounts shall lose a portion of purchasing power due to inflation. It is important to keep a small portion of investments in cash or near cash assets to cater for emergencies.
? Government Securities: Governments borrow from the public to finance expenditures through issuance of treasury securities. The government of Ghana issues treasury bills with tenors of 91-days to 364-days, 1 and 2 year treasury notes and treasury bonds with tenors of 3years and above. The government of Ghana sometimes issues treasury securities denominated in US$ dollars. Government securities are referred to as “risk free”. This is because, it is assumed government will not default in redeeming treasury securities. In reality, government can default in redeeming their securities. Government securities is more therefore considered riskier than cash on the risk ladder. ….(to be continued)
This weekly report is the copyright of NIMED Capital Ltd. (NIMED), an investment banking company licensed and regulated by the Securities and Exchange Commission (S.E.C.) of Ghana as Investment Advisers as well as the National Pensions Regulatory Authority (N.P.R.A.) as an approved Pension Fund Manager. Information and opinions herein have been compiled or arrived at based on information obtained from sources considered reliable; we therefore do not hold ourselves responsible for its completeness or accuracy. All statements of opinion, projections, forecasts, or those relating to expectations regarding future events or performance of investments represent NIMED’s own assessment and interpretation of information currently available to NIMED, which are subject to change.