FINANCIAL LITERACY FOR ALL-CASH FLOW & CAPITAL GAIN
The neighbourhood is quiet. Today, 8th
February 2012, Ghana lost one goal to nil in the semi-final football match
against Zambia in Equatorial Guinea where they are co-hosting the African Cup
of Nations (AFCON) with Gabon. This was a match Ghana should have won but lost
because we had no better strategy. Ghana even had a penalty in the first half
and it was saved by the Zambian goalie.
This is the third consecutive time; Ghana has lost
to its opponents in an African Cup of Nations’ competitive football match. We
lost one nil to Cameroun in a semi-final match on our own soil in 2008 when
Ghana hosted the tournament. We lost one nil to Egypt in the final match in
Angola 2010 and again we lost one nil to Zambia in a semi-final match in 2012.
Interestingly, all these goals against Ghana were scored by substitutes by
those winning teams. The Ghanaian coaches had no ideas. They watched the games
but they could not see any way out. The other coaches saw and then took
advantage and won. Tournament after tournament Ghana loses painfully but does
Ghana learn any lessons?
Ghana has won the cup four times and all these were
won by Ghanaian coaches. Ghana is the only African country to have won the
Under-20 World-Cup and that team was coached by a Ghanaian, Sellas Tetteh. Why
can’t Ghana have a Ghanaian coach to get us the cup again instead of foreign
coaches, who keep disappointing us? Does Ghana learn any lessons?
It is our tax money and it is the footballers’ tax
money that Ghana is not investing properly.
Investment should be made with a strategy to gain
having known and tested the terrain and many others factors taken into
consideration.
Every investment
made should bring returns in the form of cash flows and or capital gains.
Every investor has an objective whether they are
investing for cash now or for capital gains in the future. Capital gain is
dependant on future economic trends and factors.
In a football match like Ghana played today, the
result was needed now not tomorrow, if the players won they would have won
instant cash, .i.e. winning bonuses. The returns of their investment at this
level of the tournament are instant cash rewards. They win a match and get paid
bonuses. If they were to get to the final and win the ultimate then their
returns will be in the form of instant cash flows and maybe capital gains.
Most great investment products should provide both
cash flow and capital gain or capital appreciation. Where both are not
possible, then cash flow is better than only capital gain, which is expectant
on future happenings and many other factors. The gain might even not happen at
all. Inflation could even erode the value of the gain in the future. Cash
received today is better and can be reinvested else where on other cash flowing
assets.
Capital gains are got mostly from paper assets like
shares, bonds, mutual funds, insurance, savings and others.
Most valuable investment assets should bring cash
into our pockets today whiles its value keeps appreciating or increasing. We
therefore get cash now and get capital gain in the future too.
Cash is always king and should reign supreme unless
it’s heavily taxed and capital is also really assured and is tax free.
Cash
is King
Cash ‘consists of cash in hand and
deposits repayable upon demand less overdrafts.’ ‘This includes cash held in
foreign currency.’
Cash flow is best because:
Cash flow is best because:
·
Cash on hand now is
always better and more valuable than uncertain cash to be received tomorrow or
in the future
·
Cash can be spent now
on any investment and get more cash back.
·
Cash on hand is not
depreciated against future inflation; its value is worth more now than in the
future.
·
Cash is needed every
day for daily expenses, hence cash is king and more important than future
uncertain gains
·
Businesses are run with
cash on hand not cash expected. All businesses would collapse if they don’t
have enough cash on hand for their daily expenses.
Capital Gain
“Capital gain is an increase in
the value of a capital asset (investment or real estate) that gives it a higher
worth than the purchase price. The gain is not realized until the asset is
sold. A capital gain may be short term (one year or less) or long term (more
than one year) and must be claimed on income taxes. A capital loss is incurred
when there is a decrease in the capital asset value compared to an
asset's purchase price”
Capital Gain
·
Capital gain is about
gambling into the future with
uncertainties for a gain
·
Capital gain time value
for money is not better as cash is ready for spending today
·
Capital gain investment
is all about capital appreciation. In other words expecting a gain on the
investment in the future which is equal to gambling that the value of the
investment will go up, if it is sold. The gain might not come at all. Where it
comes inflation would have also come for its share, thereby devaluing the gain.
·
In some tax regimes, a
capital gain could be disincentive as tax takes a big part of the gain away.
·
Most capital gains are
from investments on the stock market, which is not perfectly efficient and
ruled by world economic factors.
·
Capital gains, however,
on real estate could be slightly taxed in some tax jurisdictions but heavily
taxed in some countries.
·
Most capital gains are
from investments managed by asset management companies or individuals called
investment professionals. This means, you, the investor does not have much control
on the movement and management of your own money. The gains or loss is
determined when you, the owner are not involved.
Valuable
investment assets should bring us both cash flow now and capital gain in the
future. Where these two are lacking, then you want o reconsider the investment
decision and channel it through another investment opportunity where the two
are possible to get.
©
2012, Godwin-Xavier Ayeebo
Email:
gayeebo@gmail.com
Blog: www.g-xavierayeebo.blogspot.com
