The GSE is down 16.82% as at July 7, 2020 and the effect of this terrible year for stocks has reflected negatively on the equity side of my portfolio. This poor performance cannot solely be blamed on the coronavirus pandemic because the GSE is following a trend of poor performance since 2015 or even since 2010, as I argued in an earlier post.

Given this grim picture, one would wonder why people should invest in stocks at all. After all, fixed income is generating high returns in the country, so why would people expose themselves to the risk of stocks? In fact, I am an unabashed advocate of fixed income products in the Ghanaian investment climate. But I do not think a portfolio is complete without some form of equity allocation.

This is because equities provide an investor with a structured way to invest in the private sector. The majority of fixed income products are government-issued and so a bet on the private sector is a good way to diversify a portfolio which already has fixed income. Another reason to buy stocks is that the upside is unlimited. You can lose all your money too, but it is simply not right to build a portfolio where you do not give yourself a chance to make a significant return.

Despite these advantages, I talk to many people who are unwilling to invest in stocks because they see stocks as a standalone investment. For example, a person invests a lump sum in a stock (say GH¢10,000.00) and after 5 years, the stock remains at the IPO price or even worse, the price drops. This person then sells the stock and swears never to buy stocks again because they are a bad investment.

I do not blame anyone who found themselves in such a situation. After all, if you put money you meant for your children’s school fees into such an investment and you get those returns, you should be disappointed! However, such an investment should not have been made in that manner. A financial adviser could have explained that it’s best to diversify that lump sum in order to manage risk. Also, she could have asked to see what assets you already had in your portfolio before advising on whether you should invest in your lump sum in stocks or not.

The idea of thinking of the performance of your portfolio rather than looking at the individual assets as standalone investments is still not popular and it’s one of the aspects of financial education that I’m most passionate about. If people are made to understand the concept of a portfolio rather than judging assets individually, then more people will understand why they need some allocation to stocks.