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Learning Ways To Start Investing

Coins and green plant isolated on white
Posted: Jul 8, 2016 at 3:12 pm   /   by   /   comments (0)

 

So many people may not know how to invest their money so as to rip bountiful returns.

A financial expert, Riby Insights, discusses how to start investing in Nigeria, in this write up.

“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 three 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.