For ‘money people’ like us, a common question we hear from family, friends and people we meet for the very first time is: what should I invest in? Everybody is eager to hear about that perfect investment instrument that will deliver mind-blowing returns, is perfectly safe, and can pay an income on the side. Unfortunately, because many people have not come across an investment that offers this trifecta – growth, income and safety – they don’t invest at all. That ends today; at least we really hope it does.
Making your first investment is a very important step to take in your journey to financial freedom. We shared a guide to making the most out of your money recently where we highlighted the importance of investing, but how do you ensure that you are investing in the right thing? As your favourite money management plug, we thought it best to give you a few pointers and maybe even make a recommendation.
So, let’s paint you a picture. Tunde is a 26-year-old lawyer who earns about N260,000 per month, net pay. He is determined to invest N50,000 of his money every month whilst ensuring he still has enough to cover his needs. He has never invested before, so he comes to us for help. We ask him 3 questions which he answers as follows:
Us: In order of priority, rank how important these objectives are to you when it comes to money where 1 is most important and 3 is least important: safety, growth, income.
Tunde: 1 – Growth; 2 – Safety; 3 – Income
Us: How soon do you intend to access the funds you want to invest?
Tunde: It will vary. I am hoping to save up enough to buy a car in a year and still have something to look forward to in the future.
Us: How involved would you like to be in managing your investment?
Tunde: I can learn what I need to, but I would rather leave my investment in the hands of a professional who keeps me up to speed on the performance of my investment.
Tunde has several options here. Based on his responses, he can go for equities, i.e., buying and selling of shares on the stock market. While he is likely to get the growth he has prioritized, he sacrifices a significant amount of safety with prices of stocks moving up and down every day. If he is not going to actively manage his portfolio, he may have to wait up to 3 – 5 years to get the strong gains he hopes to reap.
Alternatively, he can go for what is called an equity-based fund. Here, investment houses pool the money of several individuals – which will now include Tunde – to invest in several strong stocks of companies that the investors are not privy to. He will enjoy lower risk because the negative performance of some stocks in the fund could be offset by the positive performance of others. However, the risk cannot be eliminated.
If Tunde had prioritized income over growth, a more conventional adviser would steer him towards fixed income instruments like savings bonds, treasury bills and debt funds. All these instruments are offered by many investment houses as low-risk investments that pay periodical dividends at a given interest rate. However, investments like this are more favourable to players with larger sums of money.
What do we recommend?
With N50,000, Tunde can lend through a trusted platform – read FINT – for a fixed period at a predetermined and attractive interest rate (up to 39%) in alternative investment products from different sectors.
Here, Tunde can see the credentials of the partner he is lending to, determine exactly how long his money will be tied up and know the exact return he is getting back upfront. The choice is his entirely without having to worry about losing his money, market fluctuations, or constantly chasing after updates from a broker. Not bad at all for a first-timer.
The moral of the story: your first investment should be one that meets your financial goals in the easiest way possible.