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TYPES OF INVESTMENT RISKS -1 1. Interest Risk Interest rate risk is the possibility that a fixed-rate debt instrument will decline in value as a result of a rise in interest rates. Whenever investors buy securities that offer a fixed rate of return, they are exposing themselves to interest rate risk. This is true for bonds and also for preferred stocks. 2. Business Risk Business risk is the measure of risk associated with a particular security. It is also known as unsystematic risk and refers to the risk associated with a specific issuer of a security. Generally speaking, all businesses in the same industry have similar types of business risk. But used more specifically, business risk refers to the possibility that the issuer of a stock or a bond may go bankrupt or be unable to pay the interest or principal in the case of bonds. A common way to avoid unsystematic risk is to diversify - that is, to buy mutual funds, which hold the securities of many different companies. 3. Credit Risk This refers to the possibility that a particular bond issuer will not be able to make expected interest rate payments and/or principal repayment. Typically, the higher the credit risk, the higher the interest rate on the bond. 4. Taxability Risk This applies to municipal bond offerings, and refers to the risk that a security that was issued with tax-exempt status could potentially lose that status prior to maturity. Since municipal bonds carry a lower interest rate than fully taxable bonds, the bond holders would end up with a lower after-tax yield than originally planned. 5. Call Risk Call risk is specific to bond issues and refers to the possibility that a debt security will be called prior to maturity. Call risk usually goes hand in hand with reinvestment risk, discussed below, because the bondholder must find an investment that provides the same level of income for equal risk. Call risk is most prevalent when interest rates are falling, as companies trying to save money will usually redeem bond issues with higher coupons and replace them on the bond market with issues with lower interest rates. In a declining interest rate environment, the investor is usually forced to take on more risk in order to replace the same income stream. 6. Inflationary Risk Also known as purchasing power risk, inflationary risk is the chance that the value of an asset or income will be eroded as inflation shrinks the value of a country's currency. Put another way, it is the risk that future inflation will cause the purchasing power of cash flow from an investment to decline. The best way to fight this type of risk is through appreciable investments, such as stocks or convertible bonds, which have a growth component that stays ahead of inflation over the long term.
Unemployment and underemployment have become a major challenge to both the Nigerian government and the people. Sadly, many youths have lofty ideas to start up and manage their businesses, but they are hampered by the fact that they do not really know how to fund their business ideas. They often walk from one point to another in search of white collar jobs which are non-existent. If you happen to fall into this category of unemployed Nigerian youths, worry no more because I can assure you that this piece will be an opener in the end. #1. Family and friends One of the sources of business funds is family members and relatives. Borrowing from friends, parents, siblings, uncles, is significant and good if you come from a family where there are able and capable people to lend you. Sometimes they offer such moneys without asking for interests and you don’t have to service the debt. In some families, they have meetings on how to collectively support one of their own. It is a common practice in Nigeria. Therefore, one of the ways you can generate business funds, be it capital or project money, is through friends and family members. Some people who are lucky to have parents who willed some properties in their names can decide to sell off some of the properties just to generate enough money to fund their business. #2. Personal finance One of the ways individuals can get loans is by funding it themselves. People who manage to operate a local account (mostly fixed deposit) can empty it just to fund their business. You can also sell your shares to generate money to fund your business. It is often said that, “If you save money, money will save you.” This is the most common and the best of them all because you don’t need to beg anyone for support. Traditionally, this is regarded as the best but it doesn’t mean other methods shouldn’t apply when you don’t have enough to start or support your business. #3. Local co-operative societies In Nigeria, people often join co-operative societies and borrow so as to generate business funds. They do money sharing in turns, in that a huge percentage of their savings are given to members to start business with it. To achieve this, join a local co-operative in your area and understand how they operate. When it gets to your turn, they will give you huge share of their savings and with the money you can use it to fund his or her business. Local co-operatives have been known over the years as one of the sources of business funds in Nigeria. #4. Nonprofits / Angel Investors Some Non-governmental organizations or nonprofits are established for the sole purpose of helping people have access to certain grants or loans. NGOs are often owned by High Networth Individuals, so these philanthropists dole out certain amount of money from time to time to help people. To achieve this, you can write to Emeka Offor Foundation on firstname.lastname@example.org. In your letter, explain your business ideas and the need for them to sponsor your business. The challenge with nonprofits is that there are no guarantees one will get such funds. Better still; write a proposal to them seeking to award you a contract for a project in the Foundation. It must not be Emeka Offor Foundation; it can be any nonprofit or philanthropic organization in your area. Soliciting for funds from nonprofits is one of the sources of business funds because they often sponsor individuals. #5. Partnership When we hear names like PZ Cussons (Paterson and Zochonis) is a good example of how partnership can transform businesses. Partnership means two individuals pooling their resources and using it to fund their business ideas which may not be funded by one person alone because of the huge financial implications of such businesses. To form a partnership, the two parties must trust each other and each party’s contributions must be clearly defined. If you wish to get into partnership to fund your business, you must sign all necessary agreement documents with your partner. Verbal agreement is not the best for partnership. Do away with procrastination as time waits for no one. Go out there and explore any or all of these sources of business funds and believe that your efforts shall not be in vain.
STEPS ON HOW TO BECOME AN ENTREPRENEUR 1. Take a Stand for Yourself. If you are dissatisfied with your current circumstances, admit that no one can fix them except you. It doesn't do any good to blame the economy, your boss, your spouse or your family. Change can only occur when you make a conscious decision to make it happen. 2. Identify the Right Business for You. Give yourself permission to explore. Be willing to look at different facets of yourself (your personality, social styles, age) and listen to your intuition. We tend to ignore intuition even though deep down we often know the truth. Ask yourself "What gives me energy even when I'm tired?" How do you know what business is "right" for you? There are three common approaches to entrepreneurship: Do What You Know: Have you been laid off or want a change? Look at work you have done for others in the past and think about how you could package those skills and offer them as your own services or products. Do What Others Do: Learn about other businesses that interest you. Once you have identified a business you like, emulate it. Solve a Common Problem: Is there a gap in the market? Is there a service or product you would like to bring to market? (Note: This is the highest-risk of the three approaches.) If you choose to do this, make sure that you become a student and gain knowledge first before you spend any money. 3. Business Planning Improves Your Chances for Success. Most people don't plan, but it will help you get to market faster. A business plan will help you gain clarity, focus and confidence. A plan does not need to be more than one page. As you write down your goals, strategies and action steps, your business becomes real. Ask yourself the following questions: - What am I building? - Who will I serve? - What is the promise I am making to my customers/clients and to myself? - What are my objectives, strategies and action plans (steps) to achieve my goals? 4. Know Your Target Audience Before You Spend a Penny. Before you spend money, find out if people will actually buy your products or services. This may be the most important thing you do. You can do this by validating your market. In other words, who, exactly, will buy your products or services other than your family or friends? (And don't say. "Everyone will want my product." Trust me --they won't.) What is the size of your target market? Who are your customers? Is your product or service relevant to their everyday life? Why do they need it? 5. Understand Your Personal Finances and Choose the Right Kind of Money You Need for Your Business. As an entrepreneur, your personal life and business life are interconnected. You are likely to be your first -- and possibly only -- investor. Therefore, having a detailed understanding of your personal finances, and the ability to track them, is an essential first step before seeking outside funding for your business. As you are creating your business plan, you will need to consider what type of business you are building -- a lifestyle business (smaller amount of startup funds), a franchise (moderate investment depending on the franchise), or a high-tech business (will require significant capital investment). Depending on where you fall on the continuum, you will need a different amount of money to launch and grow your business, and it does matter what kind of money you accept. 6. Build a Support Network. You've made the internal commitment to your business. Now you need to cultivate a network of supporters, advisors, partners, allies and vendors. If you believe in your business, others will, too. 7. Get the Word Out. Be willing to say who you are and what you do with conviction and without apology. Embrace and use the most effective online tools (Twitter, Facebook, YouTube, LinkedIn) available to broadcast your news. Use social networks as "pointer" sites; i.e., to point to anything you think will be of interest to your fans and followers. Even though social networks are essential today (you must use them!), don't underestimate the power of other methods to get the word out: e.g., word-of-mouth marketing, website and internet marketing tools, public relations, blog posts, columns and articles, speeches, e-mail, newsletters, and the old-fashioned but still essential telephone. If you take these steps, you'll be well on your way to becoming your own boss. It's important to remember that you are not alone. If you want to "be your own boss" but you still feel stuck, reach out and connect with other entrepreneurs in a variety of ways. You may be surprised by the invaluable contacts that are right at your fingertips.