Casafina June 3, 2021 0 Comments

HOW TO KNOW THE RIGHT INVESTMENT FOR YOU

We already know how handy investments can come, especially in times of economic crises and emergencies, but that does not strike out the fact that not all investments are good.

Depending on a number of factors, some investments are not right for you while some are just perfect. Like they say, “What’s good for the geese, could be poison for the gander”.

The right investment helps you to provide financial security, but the wrong one might strip you of every financial protection you’ve got and leave you vulnerable.

So, here are some factors to consider to help you make the right kind of investment for you:

1. AGE: Age is a very determinant factor, in fact, it is a risk factor in investment planning. Some investments are good for a particular stage in life. There are investments you can make when you’re young and there are those you can’t afford to make when you’re old.

A young man at the age of 21 can decide to be more aggressive in his investment choices. He is young and has some time on his hands to try out more risky investments than a man at the age of 50.

Also, some of the responsibilities a 21-year-old would take on later in life (in terms of marriage and raising a family), may not give him the needed allowance to take such risks and make certain mistakes. Even if his finances are significantly affected at that time, he’s independent enough to make a comeback easily than his much older counterparts.

The much older man or the family man would find it wise to invest in much safer instruments like sovereign bonds, which are more guaranteed and are not likely to fail.

2. KNOWLEDGE: What you know about the instrument you are looking to invest in is very key to your success as an investor. Do not get involved in an investment you have no knowledge of. No matter how much risk you are willing to take, this isn’t worth it.

Most times, you end up losing so much that you cannot come back from, so if you cannot explain it, don’t patronize it.

3. RISK TOLERANCE: Investments naturally will have ups and downs, and your risk tolerance would determine how you would respond in adversities. You need to ask yourself if you’re stable enough to review your position objectively. Taking a risk assessment test will be helpful to give you an idea of what your risk profile or preference is.

If you are very risk-averse (i.e., nervous about losing money), you could invest in safe assets or fixed-income assets that are guaranteed. Risk avoiders are less likely to do research before they invest, so fear of the unknown may be behind your aversion to risk. Taking time to educate yourself about different investments and finances, in general, should reduce your anxiety about investing.

If you are more risk embracing, you would be willing to take risks with your investments, but you should make those moves from a position of financial security. People in this category are mostly millennials and get a thrill from investing. They are more likely than other investors to take a chance on high-risk, high-return investments.

Conservative risk-takers could try their hands in both secure and high-risk investments as they can sometimes be risk mitigators or risk managers. All in all, whatsoever you do, make sure to balance your risk-taking decisions with other factors mentioned above.

4. CURRENT CASHFLOW: How much income do you get on a monthly basis compared to your expenses? The margin says it all. For example, a person who earns ₦100,000 monthly with an expense of ₦10,000 is more likely to stake more and take more investment risks than a person who earns the same amount monthly, but with an expense of ₦80,000, because he does not have the margin to absorb it.

Your cashflow really plays a determinant factor in making investment decisions. Some investments, such as real estate are only accessible to large income earners because it is capital intensive, compared to smaller ones like treasury bills and stocks that can be acquired with a relative sum.

5. TIMELINE OF YOUR INVESTMENT: Some investments are long-term, while some are short-term. Depending on a number of factors, like your risk tolerance and age, the timeline of your investment comes into consideration. Shorter-term investments such as treasury bills & SaversClub are as good as their longer-term counterparts, such as real estate investments like One Square Meter, or buying landed properties for long-term benefits.

The more risk-averse you are or older you get; short-term investments would usually be more likely for you as opposed to being younger and more risk embracing.

6. DEVALUATION: Looking at the Nigerian economy today, the value of the Naira has taken a dip against the dollar in the foreign exchange market. This means that the value of your ₦10,000 6 months ago has dropped to probably ₦8,000 in 6 months.

The factor of devaluation must be considered when making investment decisions. You need to look out for instruments that protect your investments from devaluation, especially if you are investing for the long term. Real Estate is one of those instruments that appreciates over time and provides financial security.

Also, as much as possible, you need to get familiar with forex instruments such as mutual funds, especially with long-term investments.

7. INFLATION: The relative loss in the purchasing power of the currency is known as inflation. This means that, what you could buy with ₦2million a year ago, may not get you the same thing now. With time, currency will lose value and you would need to make sure your investments give you returns above the current inflation rate, otherwise you are losing money.

To learn more of these simple ways, watch our YouTube video detailing the steps.