I have not yet met a person that, when asked the question, “Do you want to invest?”, would say “No”. This just shows that we all are willing to invest because we want our money to work for us and, probably the only thing stopping us, is the risk involved.
All many people would rather hear is the when and where to invest, but we need to understand the basics of what we are getting ourselves into.
Successful investors always know the basics before starting out and succeeding. And generally, for any activity we find ourselves engaged in, learning the basics is one of the keys to success.
Rule #1: Save First
When it comes to investment, there are lots of rules to consider and I think the first rule is to save. We can never take savings out of the picture because it is very important. We all claim we want to invest, but do we have the money? There is an old investor saying:
The higher the cash you invest, the higher your returns.
If we hear the interest on an investment option is high tomorrow and we have no money, the information becomes useless. The first rule is to save.
Rule #2: Have a Plan
Before we engage at all in any investment, we must have our plans clearly laid out.
- How much do we want to invest?
- Why are we investing?
- What do we know about the investment option? Do we have sufficient information to go by? Things like:
- The time frame of the investment
- The returns we are expecting from the investment
- The RISKS involved
We must know and understand our risk appetite.
Risk Appetite: The amount and type of risk that a person or organization is willing to take in order to meet their goals or targets.
When we are in doubt about the investment, we should immediately pull out of it – or get clearer information about the option.
Rule #3: Invest Periodically
We should avoid investing all our money or savings at once. I understand some investment options may have low risk but we have to remember that nothing is certain. We also cannot determine the interest rates that accrue to the different options because they vary. Investing periodically allows us access the various interests.
Rule #4: Diversify
Never put all your eggs in one basket.
Most of us have fallen victim of this, so it must be avoided when it comes to investment. We must learn to spread our money across different investment options to spread the risks. We can be investing in mutual funds, Nigerian Treasury Bills and at the same time be investing in FGN Saving bonds.
Rule #5: Leave your Investment Alone and Think Long-term
Everyone wants to invest and get quick cash. But thinking this way, more often than not, leads us to making wrong, poor investments.
Late last year, in Nigeria, 3 Million Nigerians lost 18 Billion Naira to MMM, and many more lost millions to clone Ponzi Schemes. It is rare and difficult to invest for a month or two and get proper returns. We must be willing to leave the money for the time frame we agreed or for a long term to yield proper returns.
”Someone’s sitting in the shade today because someone planted a tree a long time ago.”
– Warren Buffett
We will get to the topic of where to invest very soon (I promise); we have a lot of legal investment options to explore together, but for now, let’s focus on the rules that keep your future invested money safe and secure!