Don’t put all your eggs in one basket: Smarter investment choices

If you’ve ever heard the ancient Ghanaian proverb, “A single stick may smoke, but it will not burn,” you already understand the core principle of investment diversification. In an economy marked by its potential for high growth but also by significant volatility with currency fluctuations, inflation, and shifting global commodity prices, relying on a single investment is like building a house on a single, shaky stick.

For the Ghanaian investor, diversification is not just a smart strategy; it is an essential shield against uncertainty. It is the deliberate act of spreading your investments across different asset classes, sectors, and even geographical regions to reduce risk and smooth out returns over time.

Why diversification is non-negotiable in Ghana

Ghana’s economy, while promising, presents unique challenges that can decimate an undiversified portfolio:

1. Currency Volatility (Cedi Performance): The performance of the Ghana Cedi against major currencies like the US Dollar, Euro, and Pound Sterling is a primary concern for every saver and investor. An investment that looks good on paper can quickly lose real value if the currency depreciates.
2. Inflation: Inflation erodes purchasing power. If your investment returns are lower than the inflation rate, you are effectively losing money. In uncertain times, inflation can be unpredictable, making it crucial to have assets that can outpace it.
3. Sector-Specific Shocks: Ghana’s economy has traditionally been reliant on commodities like gold, cocoa, and, more recently, oil. A slump in global oil prices or a bad cocoa harvest can significantly impact businesses and jobs tied to those sectors. If all your investments are in one of these sectors, you are highly vulnerable.
4. Political and Policy Changes: Changes in government policy, regulations, or tax laws can favour certain industries while disadvantaging others. A diversified portfolio ensures you are not solely exposed to the risks of one policy shift.

Smart ways to diversify your investments in Ghana

Diversification is more than just buying different assets. It is about building a balanced portfolio across several axes. Investors are able to strike this balance either by pursuing a combination of direct investments, taking part in collective investment schemes, or combining the two strategies within their portfolios.

Direct Investments allows you to personally select and hold assets such as shares listed on the Ghana Stock Exchange, government and corporate bonds, real estate, and treasury bills. This approach provides greater control and the potential for higher returns, but it requires substantial knowledge, capital, and active management.

• Shares: Invest in shares of companies listed on the Ghana Stock Exchange (GSE). Look beyond the familiar banks and consider manufacturing, telecoms, or consumer goods.
• Fixed Income: This includes government and corporate bonds. They typically offer lower returns but provide stable, predictable income and are generally less volatile than stocks.
• Real Estate: Property can be a powerful hedge against inflation. This doesn’t always mean buying physical land (which requires large capital). You can buy shares in a Real Estate Investment Trusts (REITs) and earn a share of the rent income. REITs is a company that owns, operates, or finances income producing real estate such as apartments, offices, shopping malls and hotels.
• Money Market Funds & Treasury Bills: These are highly liquid and low-risk instruments perfect for parking short-term funds and emergency savings, often offering better returns than traditional savings accounts.
• Foreign Denominated Assets: Consider holding a portion of your portfolio in stable foreign currencies. This could be through dollar-denominated investments, foreign stock Exchange traded Funds (ETFs) if accessible, or simply holding foreign currency in a domiciliary account as a hedge against cedi depreciation.

Avoid concentrating your investments in one asset. If you have investments in shares, balance them with holdings in money market funds, bonds, or real estate. This way, a downturn in one asset won’t cripple your entire portfolio.

Collective Investment Schemes (CIS), including mutual funds and unit trusts, pool resources from multiple investors and are managed by licensed professionals. They offer instant diversification across various asset classes with relatively low entry amounts, making them accessible to both beginner and experienced investors.

By combining the control and growth potential of direct investments with the stability and professional management of collective schemes, Ghanaian investors can create a resilient portfolio. This blended strategy spreads risk across asset classes and sectors, safeguards against market shocks, and positions investors to capture long-term opportunities in the local and global markets.

Essential first moves for investors in Ghana

1. Assess Your Risk Appetite: Be honest about how much risk you can stomach. Are you investing for long-term growth (retirement) or short-term gains?
2. Start Small, Think Long-Term: You don’t need millions to start. Regular contributions to a mutual fund or a money market fund can build a strong foundation.
3. Do Your Own Research (DYOR): Understand what you are investing in. Follow economic news, learn about different companies on the GSE, and stay informed.
4. Seek Professional Advice: Consult a licensed investment advisor or broker. They can help you understand your options and build a portfolio tailored to your goals and risk tolerance.

What this means for you

In the uncertain but opportunity-rich landscape of Ghana’s economy, diversification is your best defence and your most reliable strategy for building sustainable wealth. It is the financial equivalent of the wise farmer who plants multiple crops: if one fails, the others will sustain him.

By spreading your investments, you are not trying to hit a single home run; you are building a resilient team that can weather any season rain or shine and secure your financial future.

>>>this article is written by the Portfolio Management Team at SEM Capital Advisors Limited, a Licenced Investment Advisor

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