1. Investing Isn’t Just For High Earners
You don’t have to have another Warren Buffett’s to dabble on the into investments. Most investment funds will accept monthly deposits of N5000 or lump sums of between N50000 and N100,000. You do, however, have to be able to stomach watching your savings fall in value as well as rise.
Investing is a long game, so you must be prepared to lock your money away for a minimum of five years, ideally a decade or more. It is therefore best suited to those with long-term financial goals, saving for retirement or a child’s education, for example, rather than a house deposit or a new car.
2. Beware Reckless Caution
Gambling your money on unpredictable markets can be nerve-wracking. But history has repeatedly shown that over the long term equities outperform cash savings. This is hardly surprising when you consider the pitiful returns offered by banks and building societies on savings accounts at the moment.
The majority of cash savers are actually losing money in real terms (You can Google this fact online for yourself).
3. Think About What You Want To Invest In
Cash is traditionally seen as the least volatile asset class, your money is safe unless a bank or building society goes bust. But as shown in above, its buying power can be eroded by inflation so you end up losing money in real terms. Fixed interest investments, which are loans to companies (in the case of corporate bonds) or governments (known as government bonds), provide modest but reliable returns and are traditionally regarded as lower risk than equities.
However, this risk profile is changing and when interest rates start to rise their prices could fall and the risk of capital loss increases. Shares, also known as equities, offer a stake in a company. Shares tend to rise in value when a company does well and fall when it does not.
You can also invest in residential or commercial property and commodities, such as steel or oil.
4. Don’t Put All Your Eggs In One Basket
If you funnel all your hard-earned cash into shares in one company and the company sinks!, you will lose it all and in an economy like Nigeria which is very unstable in recent times. The idea is to ‘diversify’, which involves dividing up your lump sum across a portfolio and investing portions into varied companies, asset classes or global markets.
As some markets fall, others will rise and cancel out losses. How you spread your money will be led by your attitude to risk. Cautious investors shouldn’t have too much in equities.
5. Think About Investing Through A Fund
You can buy shares directly but this can be expensive, difficult and risky. For a beginner, it’s usually better to invest through a collective fund, which offers an affordable way to buy up lots of different assets without the responsibility of making your own investment decisions.
In the most popular type of investment fund, such as a unit trust or open-ended investment company (OEIC), you buy units and your money is pooled with others.
A fund manager then uses their expertise to buy and sell shares (or bonds) on your behalf to maximise returns for investors. There is a charge for investing in funds, but because you are spreading the cost with your fellow investors, it works out much cheaper than it would be for you to invest in the same shares yourself.
At this stage, I’d recommend the Angelstartups’s long term, risk free investment for everyone (You can find out more about it on AngelStartUps)