Cardinal Rules of Investing
You really want 2019 to be your year of financial stability, don’t you? We want the same thing for you. That’s why we take the time to tell you things you need to know before you make a financial decision. If you’re thinking smart, one decision you will make is to invest. However, most people follow the bandwagon when it comes to investments and end up getting their fingers burnt; we don’t want that to happen to you. Before you invest, critically consider the following:
First, what is the state of your finances?
Does your current income cover all your expenses? Do you have a monthly budget that you follow strictly? Do you have debts that you’re struggling to pay up? Essentially, you need to determine what your finances look like and whether or not you can afford to invest. Otherwise, you will put money in an investment only to withdraw it once a need arises.
To get the best picture, make a list of all your expenses including PHCN bills, fuel for your generator, food, transport, water, clothing, tithes & offerings, alms to the poor, allowances to family members, Aso Ebi, daily provisions, fees, debts, movie tickets, dinner dates, gifts for your lover(s), and any other applicable item. When you compare this list with your income, you must be able to cover all these expenses.
If you cannot meet your needs adequately, you can either cut down on expenses or increase your income. Whatever you do, don’t go into investing if you’re only going to have to borrow to cover basic expenses down the line.
Second, why do you want to invest?
Investing can be short- or long-term. Some people invest in stocks or bonds and forget about it for years maybe even until they retire. Others want to buy a car and are looking for the smartest way to save the money they have now till they can afford to make the purchase. Your end goal is, therefore, critical to determining when to invest and in what instrument.
For instance, Adaobi is a 26 year old lady living and working in Lagos. She has N100 000 she would like to invest every month in preparation for her impending move to Canada – yep, she is leaving as well. She knows she will need these funds in less than a year but does not know the exact time; what does she do? Rather than lock in her funds in a fixed deposit, Treasury Bills or a 2-year savings bond, she looks for an investment that affords her easy entry and exit.
Third, what is your risk tolerance?
Understand this: with every investment comes some level of risk. Sure, there are ways to manage these risks with proper research, financial advice from professionals, and diversifying your investments. However, there is always a chance – sometimes near zero but not quite – that you will lose money. That said, do not fret; investment professionals like us live to reduce this risk to the barest minimum.
If you’ve done one and two above and realize that you have sufficient funds to invest over a long period, you may consider the more risky investment opportunities as you are likely to enjoy greater returns over said period. If you, however, have funds that you will need within the year, you’re better off with safer investments and modest returns.
Or you can have the best of both worlds when you do four below.
Four, have you critically considered the available investment options?
Again, never follow the bandwagon when it comes to investing. That product or stock everyone is running to will crash just as quickly as it has risen when people pull out and move on to the next thing. Rather, carefully consider the cost and benefits of any investment. Ask yourself:
- Who is behind this investment? Are they credible? Do I know where to find them? Are they licensed to provide this service?
- What is the thing I am investing in? If it is a stock what do I know about the company? If it is a bond, who is issuing it – government or corporate? If it is a loan service, who am I lending to?
- What are the costs and benefits of this investment? What interest rate will I enjoy? Will I have to pay any fees to the provider? Is there a penalty for pulling out my funds?
If you’re able to answer all of these questions, chances are you will have a much better grasp of where you are and how you can move forward with investing. You will likely also find that an investment that offers a hedge against risk, an interest rate as high as 39% per annum and a seamless onboarding process like FINT is the best you can find out there.