As a Consultant, I am often asked questions like “I have X amount of money, what should I invest in?”, “What kind of business will you advice me to start?”, “Can I invest in the stock market now?” Few months ago, a potential client called me from Abuja. He told me he had 5 million Naira and would want to know the lucrative business he could start that will yield quick and huge returns. First I explained to him that every business is lucrative as long as the person running it has the basic business and money management skills needed to run the business. I went further to ask him if he has any investment plan for his money. He responded saying “I have no investment plan. I am only looking for a lucrative business that can yield immediate income so I can recover my capital on time.”
If you have X amount of money that you want to invest like my caller from Abuja, first, you need to understand that every business is lucrative and will yield income, but the success or failure of the business is subject to the person managing the business. Without the required business and money management skills, any business is subject to fail. Secondly while starting a business is also a form of investment, it is important that you have an investment plan on how you intend to invest, manage and grow your money.
When it comes to investing your money, you must understand that investment is not a product or some kind of fast procedure. Investing requires that you have a personal plan. What does it mean to have a personal plan? It means to have a thought-out strategy or strategies on how you intend to grow your money. Having an investment plan is like planning a cross country trip, say from Lagos to Abuja. How you intend to arrive at your destination will be determined by the means of transportation you have chosen. You can decide to travel by road, sea or air. If you decide to go by air, you will arrive at your destination on time, but it will require more money and high level of risk. So it is with investment.
When it comes to investment, you must have a clear picture of three things in mind—where you are, where you want to be and the financial vehicle[s] you have decided to use. Although all three are important, the most important is the financial vehicle[s] you have decided to invest your money into.
What are financial vehicles? These are investment platforms by which an investor can grow his or her money over a period of time. They are referred to as any method by which individuals or businesses can invest and ideally grow their money over a given period of time. There is a wide variety of financial vehicles, which can be categorized into Real Estate, Business and Paper Asset, which include stocks, mutual funds, bonds etcetera. Many skillful investors always choose to hold at least several types of these financial vehicles in their portfolios. This is what they call diversification, which helps to minimize risk and loss. But if you are just starting, here is what you need to do to protect your money, making sure risks and losses are minimized.
Firstly, you will need to decide how much you want to invest, which is where you are right now. Then you will need to know how much you want to receive from your invest over a given period of time. Secondly, you will need to find out which financial vehicle has the capacity to accommodate your money and bring you the exact returns you want. Once you have done that, then you will need to gain more knowledge as regarding that financial vehicle or vehicles you have chosen. I always advice inexperience investors to take note of this: if you don’t have control over the investment; it is better you don’t invest your money. And if you don’t have the knowledge of how the financial vehicle works, don’t invest in it. So it is important that you have a very good knowledge of how the financial vehicle or vehicles you have chosen work. If you don’t, you may lose your money in a single investment. Also, when you want to start investing; make sure you are starting small. Even if you have 100 million naira at your disposal, don’t be carried away by the returns on any investment, start small and gain experience as you gradually grow yourself and your investment. Lastly, some believe you should put all your eggs in one basket and watch the basket; others believe you should diversify, but here is my advice; start with a financial vehicle. When you have come to that point that you have acquired knowledge about another vehicle, then test-run it and gradually start investing in both vehicles and then you can increase to as many as possible following the same procedure of acquiring the required knowledge and starting small. Good luck!
