Learn from Olushola who made N10 million in mutual funds in three years

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Mr. John Olushola (real name withheld) is an independent shareholder in some of the companies listed on the floor of the Nigerian Exchange (NGX). John is an unassuming man with an estimated net worth of approximately N10 million which he made from investments in mutual funds. 

John has a simple story: He graduated from the University of Nigeria Nsukka in 2018 during the buildup to the 2019 general election after which he relocated to Lagos to live with his uncle and search for a job. 

By 2019, following the growing unemployment in the country, John was able to secure a job as a factory worker in a company which was running into challenges on multiple fronts. Competitors were eating away at the company’s profits and even the survival of the business itself was in question. 

With investment on his mind, he read a book on investment. This book summarized the habits and tactics of some of the world’s most successful investors who leveraged mutual funds to increase capital gains through investment advisers. Inspired by this book, he decided to take action and invest the only N50.000 he saved from the factory work in mutual funds after getting advice from an investment expert who recommended stocks that have good fundamentals.  

Within some months, he added a bit more to his holdings with his little earnings and had by then purchased an appreciable number of shares. Little did he know that from this modest beginning his life and his net worth would, in time, be transformed completely with about N10 million in three years. 

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John is one of the many savvy investors who have grown to become super rich from the little beginning in the Nigerian capital market by setting personal goals to achieve wealth. 

That’s why when it comes to personal goals, everything has a tradeoff. Most people don’t have enough money saved to be able to live adequately in retirement without earning some kind of investment return. In the simplest terms, by not investing, you risk outliving your money. 

When making an investment decision involving risk and rewards, don’t forget that diversification—spreading your investments across a large number of companies is a powerful way to minimize risk.  

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New entrants in the field of investment are mostly overcome with the fear of taking the wrong step in the choice of securities. A beginner usually buys one or two stocks and expects to make enough profit he had been made to believe comes from stock market. More often than not, short-term disappointments happen in place of the profits expected.  

This leaves the beginner agonising, regretting he did not choose a more rewarding investment option. He may end up selling his portfolio and moving into another stock expected to do better than the earlier option. Soon the stocks he thought were going to do better also begin to go down.  

Mutual funds or collective investment schemes represent major vehicles to get share investing right from the start and avoid possible initial disappointments killing the investors’ enthusiasm. These funds create a balance between the expectations of returns in a rising market and the possibility of losses when the market falls.  

The funds are currently one of the most popular investment vehicles for the majority of investors the world over. 

The investment portfolio for a beginner requires being constructed around a diversified group of securities, spread broadly across the market. This will create a low portfolio risk advantage and thus guarantee the level of returns required to transform investments into great wealth over the years.  

Mutual funds in Nigeria 

  • Mutual funds operations in Nigeria came to the limelight for the first time during the early 1990s, as a result of rapid growth in the financial sector induced by the deregulation policy of the mid-1980s. They emerged as part of the financial market innovations that followed the policy of deregulation. 
  • Banks engaged in competitive floatation and management of mutual funds then as is happening again presently. A good number of them closed shop during the financial turmoil that followed and others remained relatively insignificant with limited impact in the capital market until the banking consolidation and the financial meltdown that resulted in a plunge (depreciation in share price) in the equity market reinforced the investment bankers to start creating new mutual products. 
  • Market analysts are of the view that mutual funds provide the means to connect the current apathy in savings and investment. They argue that this became necessary following the downturn the Nigerian capital market had witnessed, which resulted in investors experiencing heavy losses in their investments, leading to apathy by investors and a lull in activities at the stock exchange.  
  • They believe mutual funds are the right platform to attract and encourage numerous retail investors as the majority of them are not investment savvy and could begin to play the market with as little as N5,000. They noted that the platform could also be used to curb the increasing wave of unclaimed dividends which retail investors are majorly affected by. 

Real reasons for investors to key into mutual funds 

Some market operators in the Nigerian capital market have described investment in mutual funds as a good investment strategy that is giving investors greater access to professional fund management.  

  • According to Managing Director, Crane Securities Limited, Mr. Mike Eze,investors that do not have in-depth knowledge of the capital market nor the time and expertise to analyse and invest in stocks and bonds, mutual funds offer various benefits which include affordable access to expensive stocks, Risk diversification; mutual funds invest in a basket of asset.” 
  • Eze, who noted that except the investing public begin to access the stock market through investment professionals, equities would continue to record loss in value and thereby hinder the growth of the securities market, said investing in mutual funds would give investors opportunity for professional fund management by fund managers charged with the responsibility of providing them with in-depth research inputs from investment analysts.  
  • Eze said the fund enabled retail investors to invest in various instruments such that if one is failing, the other holds fit, so instead of putting all your eggs in one basket, it is now spread across many instruments that may not fall at the same time.  
  • “The whole idea is to pull together the resources of small investors and be able to make a pool that would afford such an investor the opportunity to invest in choice instrument. It is about creating a portfolio, a meek portfolio,” he said. 
  • Also, the Managing Director, Highcap Securities Limited, Mr. David Adonri, said mutual fund enables investors with shallow knowledge of investment to invest wisely. Aside from investing wisely, he said investors, who don’t have enough resources, could also invest in certain shares of their choice through mutual fund.  
  • “For instance, the question of funds required to invest in certain area may be beyond what an investor can provide at any point in time and such investor can still invest in that area through a mutual fund. “Funds are an important financial mechanism that investors can benefit from and because funds can be very large in terms of financial returns.  
  • They are also important in every economy in being able to supply funds massively to some sectors that the funds can invest in,” he said. He noted that most foreign investors in the Nigerian stock market were managers of mutual funds, “as mutual fund investors can invest in both stocks and bonds.  
  • “If for instance there is a mutual fund that is a growth fund, that growth fund will identify stocks in the capital market that are ‘growth’ companies, again retail investors who do not have enough funds to invest in certain capital-intensive investment can still benefit in those investments, by going through mutual funds,” he added.