A series of high profile takeover of banks by the Bank of Ghana (BoG) and new changes to investment regulations have spooked investors in the country as they are worried about the safety of their investments. In this post, I will make some suggestions about where money can be placed in times when there is uncertainty about the financial industry.
The first step is to not panic. The deposits of customers in banks and specialized-deposit taking institutions in the country have been insured, as I explained in an earlier post. As long as your institution is licensed by the BoG, there is a very good chance that you will be able to get your money in full. This is important because if you do withdraw a large amount of money without a plan on how to use it, there is a possibility that you might not use it in the most beneficial way.
The next step is to think of your planned expenditure for the next 2-3 years. This should give you a good idea of the money which you will need in the short-term and those which should be put into longer term investments.
The options for short-term investments should include savings accounts, treasury bills and money market mutual funds. These are among the safest and most liquid investments that one can use in the short-term. In times of uncertainty, when more people are investing in these kinds of assets, it is likely that the returns from them will be low. However, they offer you protection on the downside and access to your money when you need it. These should therefore be your option for keeping funds that you would need for between 3 months to 1 year.
Due to the low returns that occur when there is a rush to short-term securities, there is usually an opportunity to earn higher returns on longer-dated ones. However, it would be unlikely that the returns on such investments can be realized in a short period. The collapse of confidence in the financial sector could mean that some assets could currently be selling for less than they are worth as people struggle to sell in order to get cash. This is an opportunity for investors with a long-term focus to purchase some equity mutual funds, balanced mutual funds and fixed income mutual funds. These products have the capacity to perform strongly when confidence starts to normalize and funds start flowing back into them. This would allow those who invested early to reap the most benefits.
If you also seek to invest long-term but you are not interested in mutual funds, then you can buy bonds issued by the government of Ghana. Some of these bonds have a maturity period of between 3-5 years which should suit the time frame of those looking for decent returns at guaranteed interest rates. Ask your bank or broker about the availability of such instruments.
A lack of confidence in the financial sector tends to be temporary because an economy would find it impossible to run without a financial sector. It is almost certain that out of necessity people would be back to subscribing to financial services without any doubt about the security of their money. It is up to investors to steer carefully and patiently through these storms and arrive safely at their investment goals.