Kalu AJa: What you should know about the ‘Financial Life Cycle’ (Y! Naira&Kobo)

By Kalu Aja

So we have looked at planning networking and budgeting, let’s look at the Financial Life Cycle.

If you had N100k, and you wish to invest it, where should you put it?

First you have to answer three basic questions

  1. How old are you?
  2. What level of risk can you take?
  3. What is the investment goal?

The answer to these three questions allow you to determine what investments to put your N100, 000 in.

Let’s look at them in detail

  1. Your age, if you young, you can take more financial risk and recover, if your older you cant. So what investment are risky? Which are safe? Well FGN Bonds and other fixed income investment are termed “risk free”
  2. risk? If you have a larger appetite for risk, then your choice of investment options will reflect that. Note gambling is not an investment choice and if your approaching retirement you should not take risks with your money
  3. What is your investment goal? if your goal is to grow your principal then your goal is capital appreciation which is riskier than is you simply want to retain make income off your principal in which case your objective is capital preservation.

These three decision are normally expressed in an Asset Allocation statement

Asset allocation is an investment strategy to balance risk and reward by sharing your assets according to goals, risk and time horizon. What every investor wants to do is match investment goals to available asset classes taking into consideration the risks the investor can bear and external factors like inflation.

So look at the diagram, it shows lifetime states from Accumulation, to Consolidation to Gifting with recommended investments as the investor get older.

The idea is that you as an investor recognizes where you are in terms of your age and then ty and mirror your investment choices.

In accumulation phase which we put at ages between 18-40, the goal here is asset accumulation, rick is acceptable. Bulk of assets in stocks.

In Consolidation phase, focus is on retirement, less risk accepted, bulk of assets in fixed income like bonds

In spending phase, the investor has retired, absolute no risk allowed, main investments in bonds, safe bonds.

In gifting phase, client is focus on philanthropy, this is similar to spending phase, no risk

This is just a guide, the key takeaway is this, as you get older, reduce your exposes to investments that do not offer a fixed guaranteed rate of return.

So back to our question on N100,000.00 the answer would depend on your age, and objectives as earlier stated.  if your below 30 and investing for a long period of time, investing in equity or shares would be a good decision, if your 55 and ready to retire, investing in safe bonds is a good way to preserve your capital

We stop here, next week we explore how to invest

Key Learnings

  1. Capital Preservation
  2. Capital Appreciation 

Financial Jargon of the Week

What is Yield? The income returns on an investment. It is usually expressed annually as a percentage based on the investment’s cost, its current market value or its face value.

Thus if I buy a bond for N1000, and the bond pays me N100, my yield is the income (N100) divided by the Cost (N1000) as a percentage so 10%.

This is different from a Coupon which is the interest rate stated on a bond. The coupon is typically paid semiannually. In this example the coupon is N100.

A Dividend is a distribution of a portion of a company’s earnings, decided by the board of directors, to its shareholders. Dividends can be issued as cash payments, as shares of stock, or other property. Normally dividends are for equity investments.

Again using our example, if I invested N1000 in Nestle Plc, if Nestle pays me a dividend of N100, my Dividend yield is 10% (N100/N1000) x 100


Kalu Aja is a financial planner with 17 years experience spanning brand management, private and investment banking, and pension management.

He has three chores, to constantly learn, to support Fiscal Federalism and to love  Enyimba Football Club.

Kalu tweets @FinPlanKaluAja

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