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How To Start Investing In Nigeria by chief(m): 5:58pm On Oct 05, 2015 |
First of all, there is no one size fits all approach to investing. Everyone has different financial obligations, earning potential and risk profiles. Therefore what works for Amaka, may not necessarily work for Chichi. For example, lets say Amaka and Chichi both earn N200,000 a month. Amaka has been saving 50% of her salary for the last 3 months and decides to invest in the stock market. She buys Dangote Cement at N182 per share and in just a few months the stock price goes up to N203. She is so excited that she shares the good news with Chichi. Chichi has been looking for ways to make money, outside of her salary, so she goes ahead and invests the money she had been saving in Dangote cement. Error! Most people tend to make the mistake of saying, “Mr. Lagbaja made this investment and made a killing, so I’ll make it too”. This ‘me too’ approach to making an investment decision is what often leads to a lot of people losing money. Let me explain why this is the wrong approach. Amaka and Chichi may earn the same monthly salary but their circumstances are different. Amaka is 25 years old lives with her parents and has little or no obligations. If she didn’t put that money in the stock market she would have spent it on clothes at L’espace. Her expenses for the month mostly comprise of fuel for her car and credit for her phone. Equity is a relatively high-risk investment but historically it gives better returns in the long run than any other asset class and the longer her money is invested, the higher the average rate of return. Since, she has zero to no obligations and age is on her side. She can afford to take the risk of investing a huge portion of her earnings in the stock market in the long run. Chichi on the other hand is 32 and married with 2 children under the age of 7. Her husband’s income is inconsistent; therefore she has a great deal of financial responsibility. She is responsible for paying half the rent and one child’s school fees. Chichi had been saving that money towards the rent and school fees but was looking for ‘faster’ ways to grow her money. This was a bad move because if the price of Dangote cement goes down, so will the value of her investment. Since she needed the money in the short term this was not a good investment to make for her situation. 4 steps to help pop your investing cherry! Establish Your Investment Goals Why are you investing? Sounds like a simple enough question but many people can’t answer it because they haven’t fully articulated what they want their money to do for them. Are you putting money aside towards rent? A car? Retirement? Building assets? The reason you are investing will determine what kind of asset classes you should invest in. For example, Amaka was investing towards improving her financial future, buying stocks was an excellent option because they would appreciate in the long run, pay dividends and increase her net worth. However, Chichi was investing to be able to pay her rent and a child’s school fees, which were both due in six months. This was a financial obligation that was due in the short term and required her to invest in a financial instrument that protects her principal like treasury bills, fixed deposits or fixed income products. There are no right or wrong answers. Your investment goals should reflect your financial obligations, what you value most and what you want the money you make to be able to do for your life in general. [b]You Need Money to Invest [/b]Goals are all well and good because they give you a clear sense of direction. However, don’t let anyone fool you, you need money to make money but don’t confuse this with waiting till you ‘hit’ to invest. The whole point of investing is to make sure that your tomorrow is better than your today. So, regardless of how much you earn, N50k or N500k dedicate a percentage of your income every month (10-20%) towards an investment. Cultivating this habit is the most important thing you can do with your money. Learning to spend less than you earn no matter how tight things are. Develop an Investment Strategy Now the sharp ones have already calculated that 10% of N50k is just N5,000. What can I invest in with N5,000? The truth is not much! However, my advice is even if you think what you have to start with is too little, begin with a savings account and start building it up. You can give yourself benchmarks For example; Seni’s investment strategy could be, ‘I’ll put 20% of my salary in my GTB savings account and when I have as much as N200, 000 I’ll put 50% in fixed deposits and use 50% to build a stock portfolio. I’ll keep doing this till my fixed deposits are in the range of N1- 1.5m then I’ll buy land in Awoyaya’. Culled from http://smartmoneyafrica.org/ 1 Like 1 Share |
Re: How To Start Investing In Nigeria by maxiwise: 5:50pm On May 22, 2018 |
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