In the words of Idowu Koyenikan, a renowned author and Consultant who has also made it to the Forbes list for his bestselling book “Wealth for all Africans, “When money realises that it is in good hands, it wants to stay and multiply in those hands”.
As we journey through life, the desire to achieve our dreams is often at the forefront of our minds, especially for those who have recently graduated from high school. The allure of financial freedom drives many to seek investment opportunities, sometimes making impulsive decisions without fully understanding the risks involved.
It’s true that the word “investment” can evoke fear due to the uncertainty of putting our money into something for an extended period with no guarantee of a positive outcome. However, “investment,” when approached with the proper knowledge and information, can be a powerful tool to make our money work harder for us. While it may seem daunting at first, with this comprehensive beginner’s guide, we will equip you with everything you need to know about investing, from the fundamentals to essential dos and don’ts for new investors.
Let’s dive into the world of investment together, empowering you to take control of your financial future.
1. Never invest in something you don’t understand
The first and most crucial rule of investment is to never invest in something you need help understanding. This is an epic piece of advice from legendary investor Warren Buffett. Take the time to thoroughly research and educate yourself about the investment opportunity before committing any funds. Ensure that you can explain it to someone else in simple terms.
We have several types of Investments:
The six main types of investments, also known as asset classes, each with its own characteristics, risks, and benefits:
- Growth Investments: These investments are focused on assets with the potential for significant long-term growth, such as stocks of emerging companies or industries.
- Shares: Investing in shares means buying ownership in a company, allowing you to benefit from its success and share in its profits.
- Property: Investing in real estate can provide income through rental properties and potential capital appreciation over time.
- Defensive Investments: These investments aim to provide stability and preserve capital, such as bonds, treasury bills, or money market funds.
- Cash: Holding cash or cash equivalents allows immediate fund access but may not provide significant returns.
- Fixed Interest: Fixed interest investments, like bonds, offer a fixed rate of return over a predetermined period.
I won’t delve into an extensive discussion about the types because that’s not the focus of this article. However, our future blogs will comprehensively analyse each investment type. For now, let’s shift our attention to the (7) tips that will assist you in avoiding common investment mistakes.
2) Conduct Proper Research:
Before investing, always do your due diligence. Don’t rely solely on information from the internet or other sources. Verify the accuracy of the information and consider seeking advice from reputable sources. Be cautious of fraudulent schemes or misleading information that could lead to financial loss.
What to do
- Before committing to any funds, take the time to research and thoroughly educate yourself about the investment opportunity.
- Understand the company, asset class, or financial instrument you’re investing in, and ensure that you can explain it to someone else in simple terms.
3) Determine your Investment Plans/Goals
An Investment Plan/Goals will help you determine your financial state and plan for your future progress.
Make a list of your financial objectives. Sit down and think about:
- Why do you want to invest,
- How much money do you currently have,
- How much money do you plan to support each month,
- How much you wish to put aside each month for investing,
Keep in mind that your goals may alter as your life progresses. While your immediate objective is to save enough money for a down payment on a house, in 15 years, consider paying for your children’s college tuition.
4) Invest Within Your Means:
Invest only in what you can afford to lose. Maintaining a healthy balance between your investments and your overall financial situation is essential.
- Keep track of market statistics and stay informed about trends and news that may impact your investments.
- Avoid investing money earmarked for essential expenses or emergency funds.
- Consult a financial advisor to ensure your investments align with your risk tolerance and financial capabilities.
5) Diversify; don’t put all your eggs in one basket
When it comes to investments, diversification is intended to lessen risk. Diversification is a strategy that helps mitigate the risks associated with investments.
By spreading your investments across different asset classes and geographic regions, you can reduce the potential impact of losses in any one area. For example, you can consider diversifying by investing:
- In stocks,
- Bonds,
- Real estate,
- and international markets.
This way, if one investment underperforms, others may compensate for it, helping to stabilise your portfolio.
6) Don’t Let Greed Drive Your Decisions:
Some investors have lost significant amounts of money due to greed and an insatiable mindset. Be aware of the saying that “past performance does not guarantee future returns.” You should ensure that you are not making decisions entirely based on past performance and that you weigh your options with critical thinking and verification.
Make sure your portfolio consistently reflects your risk tolerance and investing objectives by reviewing and rebalancing it.
7) Consider Fees and Commissions:
When investing, be aware of any fees and commissions associated with your investment products or services.
- Compare different options and choose investments with reasonable fees and transparent terms.
- Remember that lower fees do not always guarantee better returns, so evaluate the overall value of the investment.
In conclusion, one of the finest investments is to invest in your intellect, set aside time to study, learn more, read books, watch free courses, and ask questions. The best investment you can make is in your ability to learn, adapt, and grow. We hope this beginner’s guide has simplified your complex investment world.
Our upcoming article will provide more in-depth information and answer your investment-related questions, so please drop your questions below.
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