Globally, some of the commonest ingredients for financial stability, according to experts, are for people to invest and have multiple streams of income.
Given the current state of the naira in the forex market, rising inflation and the high cost of goods and services, which has seen even middle income earners slide into poverty, it has been said that beyond prudence, people could invest their funds in government-approved investment platforms and earn dividends they could use to meet certain needs.
Some experts are of the view that with proper understanding of the financial market or engaging licensed professionals or approaching licensed merchant banks, people could grow their funds gradually over time, without having to lose sleep over the fate of their funds.
From findings, when it comes to investment, there are a lot of baskets to choose from, and investors know not to put all their eggs in one basket. Although people are wont to choose investment options that promise high interest rates, it is equally important to evaluate and properly understand the interest rate and remittance.
The Managing Partner of PML Professional Services, Abiola Fajimi (FCA), noted some factors to be considered when making investment decisions, the various forms of investments available and the steps that should be taken by new investors:
Sevevn Important Things To Consider Before You Invest
Start with low-risk investments
According to Fajimi, financial investments are of various forms and are dependent on the goals of the investor, given that the risk varies. He stressed that the best form of investment for beginners is to buy into low-risk investments and wait for it to yield returns. He added, “Put your money in a fixed deposit in the bank, it is one of the safest forms of financial investment with very low risk but low returns. If you know you can’t run a business because you are busy with work, fix your money in the bank.” This does not only yield dividends for the investor, it also helps to save the money. He added, “You can buy Federal Government bond; it has a high-interest rate and low risk. Investors can also buy Federal Government treasury bills, it’s secured.”
Monitor market trends and stay updated
The Chief Executive Officer, McYouniverse Real Estate, Akindeji Egbekoya, said making investment decisions could be a huge task, given the several factors to consider, but that it is important for people to ask questions to clarify grey areas and monitor news or government directives on the investment they chose. He stated, “Often, an investor is overwhelmed by fear of guaranteed success in their investment pursuit. Regardless of the nature of the investment, staying updated on market trends, economic conditions, liquidity, tax benefits, volatility, financial plan, inflation rate, risks involved etc. can help investors make informed decisions on financial investments.”
Egbekoya noted further, “Before embarking on any investment journey, I always recommend conducting due diligence to improve knowledge and steer clear of scammers. Every juicy investment opportunity attracts all and sundry.”
Be cautious in taking risk
Generally, huge returns can be attractive to the extent that some people forget to do due diligence before investing their funds. However, people are advised to be cautious with their risk appetite. Some experts have advised that whatever investment option people choose to embrace, it’s not always advisable to invest in a business they have no basic knowledge of. While professionals can help, it is therefore advisable to engage those that are trustworthy. Egbekoya advised that when there is an investment option, investors should double-check with professionals or friends who can evaluate the known and unknown factors and help them make informed decisions.
Fajimi also noted that risk appetite remained an important factor to consider when making investment decisions, adding that the risk of an investment in bonds is different from that of T-bills. “As an investor, you must know your appetite and invest in what fits your appetite.”
Plan with your income
An investor must understand their cash flow and expectations, experts say. For instance, if it’s an investment that requires cash remittances, investors need to put into cognisance their cash flow so as not to default or be stuck over other basic needs.
Fajimi noted, “You can have money today and may want to use it in the next 24 months, and someone who has the same money may not need it in 10 years. What the person in the second category will invest in, others may not be able to, because their cash flow and expectations are different. So, investors should make investments that match their cash flow and cash expectation so they don’t run into challenges. What does an investor want to get as returns? If an investor wants a high return, certain kinds of investments may not work, but mind you, the higher the returns, the higher the risk. That is how it works, and investors must consider that.”
Have a personal roadmap
Egbekoya advised that people’s investment should not leave them in a worse situation when the returns come. He added, “The economic situation of a country plays a vital role in pivoting financial investments as it affects diverse investment types such as real estate, stocks and bonds. A good investment decision must be one in which the return on investment is higher than the economy’s inflation rate. A high inflation rate can affect some asset types, such as the acquisition of properties and shares.”
Have financial goals
Having a financial goal entails how people save and spend money, and what they plan to do with their money in the short, medium and long terms. Thus, this is at the heart of funds investment itself. Fajimi noted, “A personal financial plan must be considered before any financial investment. When making investment decisions, you should be able to draw up a financial road map for yourself, whether the decision involves buying or selling. An investor’s income, risk tolerance, and short or long-term financial goals can influence investment success and must be thoroughly examined to ensure appropriate choice of financial investment. This can aid the achievement of financial goals and the creation of long-term wealth.”
He noted further that an investor could also put money in a private company, adding, “If there is a private business owner that is doing well, you can become an investor in the business and get paid your dividends over time.”
He also spoke about mutual funds as good financial investments. He said, “There are different kinds of mutual funds an investor can buy into, there are equity mutual funds and money market mutual funds, all of which are available for any investor to put money in.”
Real estate has remained an investment option that financial experts often recommend, because land and landed properties tend to appreciate in value over time, barring unforeseen circumstances. Egbekoya noted, “You can buy real estate, which is also a good form of investment. You can buy land, which is also a great form of financial investment with guaranteed returns.” Meanwhile, despite being a tested and trusted investment option, people are advised to exercise caution before investing their funds.