If you are lucky, you may stumble into financial security.
Maybe, you were born into a wealthy family, or your friend helped you secure an oil block.
For the rest of us, we have to make our money work for us.
To attain financial security, especially in a country like Nigeria, you have to save and invest over a long period of time.
Knowing how to secure your financial well-being has got to be one of the most important things you’ll ever need in life.
There are a few places to invest in Nigeria, ranging from high to medium risk, but that is not what this blog post is focused on.
16 Principles of Investment To Help You On Your Investment Journey
Here are 16 principles of investment to help guide you on your investment journey.
1. Start Small, Scale Up
A wise man said “think big, start small.”
You might think you do not have enough money to start investing or you might be waiting for the big cheque to come in. Experts advise us to start to save towards investment.
You can do this by saving about 10% of your monthly income; within some months, you should have enough to start investing.
No matter how small the money is, there is an investment suitable for it, don’t wait until you’ve accumulated thousands of money in your purse before you start investing.
There will always be room for expansion in the future. Go ahead and put that money into meaningful use, it is never too early to start investing.
2. Do Your Due Diligence
Only invest in what you know after doing your research.
You have to do your due diligence at all times to avoid stories that touch.. lol.
A few things to find look out for
- insurance: most investments like agriculture are covered with insurance to protect investor’s principle. In real estate, it’s called a performance bond. Make it a point to ask for these documents. I usually look out for farms insured by Leadway Assurance because they are the top farmland insurer in Nigeria
- fees: some investments come with manager’s fee, etc. Finding out all fees associated with each investment helps you calculate your return on investment more accurately
- legitimacy: the investment company has to be a registered business backed by some financial organizations. Example, If you want to invest in Forex or the Capital Market, make sure they have an office address and are regulated by companies like EFCC etc
You should be able to distinguish between High Yield Investment Schemes and Ponzi schemes.
A high yield investment (HYI) promises it will deliver massive high returns on investment(ROI) while in the ponzi schemes money is taken from new investors to pay returns to the older ones. Understanding the difference will help you to invest wisely
3. Never Put All Your Eggs in One Basket
Be careful not to invest all your money in one place.
Example, if you put invest all your money in a farmland, it could get attacked by insects and you lose all your return on invest. Luckily, if you invest with a company with insurance, you won’t lose your principal.
One safe practice is to invest into various areas and always be willing to consider other investment opportunities, be it high or low risk. This can help spread your investment risk and increase chances of ROI.
Here is a guide on one of Nigeria’s leading investment experts on how to invest 1 million naira.
4. Know Your Risk Tolerance
Investment is risky.
You should know your risk tolerance before you start investing.
Risk can mean opportunity, excitement or a shot at big gains—a “you have to be in it to win it” mindset. But risk is also about tolerating the potential for losses, the ability to withstand market swings and the inability to predict what’s ahead.
5. Compounding is Key
Investment is a long term game and is enjoyed when profits are compounded over a long period of time.
Albert Einstein said that the power of compounding is deemed to be the eight wonder of the world. You can determine how much your money can grow over a given period using compound interest.
6. Be Consistent and Patient
Having a disciplined approach is the right way to stay on track with your investment. Consistency will help build your portfolio, you should stick to your investment plan and don’t compromise always.
Like I previously said, investment is a long term game. You will start reaping the benefits after a couple of years. Don’t panic, be patient, focus and stick to your investment plans so don’t get distracted along the way.
7. Know When to Stop, Set a Target for Return on your Investment
Don’t be greedy.
Set your target and pull out when you have reached it. This applies especially for forex and capital markets.
8. Buy Low, Sell High
It is an old common practice for investors.
Every investor wants to make profit. Buying at lower prices to sell them at a higher price can be seen mostly on the foreign exchange and the stock market. See how you can apply this principle to your investment strategy to make more profits.
9.The Future is Crowdfunding
Raising money significantly to invest can be extremely challenging, considering the terms and conditions presented by loan firms and banks.
An alternative to this is crowdfunding.
Simply, crowdfunding is a method of raising money for an investment with collective efforts of other individuals. Sourcing for anyone or group that is willing to back you in return for a price is a good way to set off your investment journey.
You can crowdfund across different industries, from real estate to agriculture. Just make sure you do your due diligence.
10. Track Your Spending
Monitoring how you use money is very beneficial to any investor.
It forces you to prioritize your spending, and determine where you want your money to go. It keeps you in control, helps to minimize impulse spending, help you to look at your financial reality to achieve your investment goals.
You can use apps like Andromoney to track your daily spending.
11. Recognize Bubbles e.g MMM
According to Investopedia, bubbles that crash creates danger for investors because they remain overvalued for an indeterminate amount of time before crashing.
As a potential investor, recognize bubbles and quickly use them to your advantage before it burst(crash).
It is a difficult task though, because all bubbles must burst, only a matter of time.
12. Be mindful of Fees and Taxes
Tax rate, levies and fees vary. Some investments requires high taxes, and operation fees, in other to be on the safe side, be mindful of these factors when making investment choices. High tax rates and levies reduces your return on investment.
Remember to include this which doing your calculations.
13. Safeguard Your Principal, Speculate with Profit
Do not gamble with your capital, engaging in risky financial transactions in an attempt to profit short – term with could be highly detrimental.
If you must speculate, use your profits. Speculation is a higher risk form of investment. Be very careful not to fall into temptation.
14. Identity Partners and Work with Professionals
DIY is not always the best approach when it comes to investment. Find or build a team, seek for partners, financial planners, and professionals to assist in bringing your investment goals to reality.
This will make things speed up.
15. Never Leave Your Money Lying Fallow
Saving is a good practice, no doubt, but it doesn’t guarantee financial security.
Don’t leave your money lying fallow in a bank in the name of savings. If you must, put your money in a mutual fund account. Their interest rate is usually higher than inflation.
16. Use Leverage with Caution
A reckless use of leverage is bound to increased risk. Some people think that the more leverage the more return, but they forget that losses can be higher.
Before you borrow money to invest, ensure you carry out due diligence properly, don’t get carried away with juicy offers from investment solicitors.
We hope these principles will help to guide you in bringing your investment dreams to life. Don’t forget; every intelligent investment is more of a mental approach than it is a technique.