Should your investments panic over Nigeria’s presidential elections?

BY EKANEM ETIM, CFA

Ekanem Etim, CFA, is an Assistant Vice President with DLM Advisory, a subsidiary of DLM Capital Group and can be reached on eetim@dlm.group

With Nigeria’s presidential elections around the corner, questions on the potential impact of the elections on all spheres of our everyday lives continually spring up in our minds. Nigerians are increasingly partaking in economic discourse, as the rapidly growing, young, inquisitive, and fickle population anxiously awaits its fate. A prevalent conversation is on how the next government’s policies will influence the economy and living conditions. 

In the wake of these discussions, investors ponder on the best investment strategies to adopt. Decisions on whether to buy, sell or hold assets; currency pairs and other financial assets, are top on the list. Speculation on candidates’ personalities, past performance and policy interests may drive short-term market movements immediately after election results are called. 

In 2015, the Nigerian stock market witnessed a 10-day stretch of gains, upon the announcement of Buhari’s win, on grounds of possible anti-corruption interventions. Meanwhile, in 2019, Buhari’s re-election was met with pessimism in the market. So, the question remains “should your investment strategy change in an election year”?    

Disciplined Investing

Investors should approach investing from a total portfolio perspective and create a workable blueprint to be followed in the long-term. This means that your portfolio should be managed holistically with the aim of achieving your set goal(s). 

First, articulate your portfolio’s investment objective(s). For individuals, this may include retirement plans, purchase of a home, or children’s education. Some objectives may be short term in nature while others will have a longer time horizon. You can also view your goals in terms of safety, income, and growth. Safety goals ensure that you preserve your initial capital against potential losses; this tends to be very low risk in nature. Income goals are more aggressive and ensure that you have some earnings, while growth objectives are the most aggressive, and are targeted at building wealth over time.

Next, build a customised plan to enable you to achieve your objectives, keeping in mind your ability to take risks, projected time horizon and possible unique circumstances such as your family situation. Many factors affect your ability to take on risks, age – the younger you are, the greater your ability to take on risks, since your portfolio seemingly has more time to recover from possible losses. Similarly, the larger your asset base, the higher your capacity to absorb losses and therefore, the higher your ability to take on risks. 

The investment plan should allocate your portfolio to different chosen asset classes; financial assets – stocks, bonds, etc. and alternative assets, such as real estate. You should maintain the discipline to strictly follow your investment plan and approach this without sentiments. Market cycles will fluctuate with policy changes, economic conditions, and other events during your investment horizon. In this period, endeavour to keep to your investment plan, since it is a long-term strategy. Therefore, the elections should not influence your long-term investment strategy.

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