This is practically not the first time you are hearing this word as you have come across the term regularly. But what do we understand about investment? Investment in the knowledge of Nigerians often means putting money which is a valuable asset into other assets that will generate returns.
In another demonstration, some people think it is the means of building wealth while allowing money to work for them. It can be overwhelming with all these meanings, but what exactly is an investment?
In this post, we will discuss the meaning of investment, types, and tips with strategies on choosing the right investment platform or strategy.
What is an Investment?
Investment is using a valuable asset, usually money to buy something that will increase in value for months or years to come. It can also be defined as a commitment of property to achieve later benefits.
For example, let’s say I have N100,000 that I intend to invest in an index funds. At the end of one year after investing the money, this initial sum would have been appreciated, generating additional money for me.
Thus, I would have earned a profit from my investment during the course of that year. This is how investment works.
Why do people Invest?
People invest to build wealth, make money work for them, save for the future, and to increase their assets’ value. When you invest, you are creating generational wealth for yourself, your children, and your grandchildren.
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If you didn’t reap the benefits and rewards your children will. This is why it is mostly recommended to start investing at a young age. Teach your kids the importance of investment so that they will build the habit till adult age.
Am new to Investing, what can I Invest in?
You can invest in appreciating assets, the mode of investments is endless as we have a lot of resources to invest your money. However, you should be mindful of investment as it comes with risks. You should invest in what you understand.
When you are ready to invest, there are options to consider and they possess the most common investment strategy in Nigeria. That brings us to the types of investment to consider when you are planning to start investing.
Types of Investments
These are the different types of investment commonly known in Nigeria right now:
1: Stocks
The most common type of investment is stock, which is also known as shares or equity. It is the process of owning a tiny percentage of a publicly traded company. It also means becoming a shareholder in that company and you get paid in dividends.
There are many publicly traded companies in the world. Examples are Meta, Google, Apply, etc. When you buy shares from these companies, you are getting a share of that company’s profits.
How to make money from Stocks? You can buy shares from any company and hold them for many years to come hoping that the price will increase in value.
When the price goes up, you make profits. However, there are some risks involved. For instance, if the price goes down, so do your shares too.
2: Bonds
What are bonds? The process of lending a company or government money to earn interest. When you invest in bonds, you are especially lending money out to accrue interest.
In general, it is the government that issues bonds. When a company issue bonds, it is called cooperate bonds, when a local government issues bonds, it is called municipal bonds. There are different types of bonds in Nigeria which include:
- Treasury bonds
- Municipal bonds
- Corporate bonds
- Asset backed bonds
There may be other types but these are the most common.
Bonds also have their risks. This is why investors should be concerned about the type of bonds they buy. For example, Treasury bonds are a bit secure since they are coming from the government.
3: Mutual Funds
A mutual fund is a type of investment security that collects funds from different investors and invests them in many companies. It can be a passive or active investment strategy.
In passively managed funds, an entire index of the market is tracked to consolidate the market value. Examples are the S&P 500 index fund and the Dow Jones Industrial Average.
Actively managed funds is being managed by a fund manager who selects individual funds for investors. Learning how they work can be a great investment option for those who want a steady stream of income.
However, just like bonds and stocks, mutual funds have their risks, although the risk is often lower because you can easily be diversified.
Investors make money with mutual when the funds they invest in either stock or bonds increase in value. Cowrywise is a good example of a place you can buy mutual funds in Nigeria.
4: Exchange Traded Funds (ETFs)
What are ETFs? They are similar investment options as mutual funds, just that when mutual funds can be bought from a fund company, ETFs can be bought and sold on the stock market.
5: Property
Property investment is the most common type in Nigeria as many people often see it as a steady way to earn income. You can invest by selling, leasing, or renting out houses and shops to tenants and make money.
However, risks and benefits involved in this type of investment as you will need to engage in thorough research to know what is going on in the property management industry.
How to Invest in Nigeria
There are ways to invest especially now that technology has made it simple for investors to invest their money.
1: First, open a brokerage account. This is where you can select and buy the fund you want. For example, Cowrywise makes it easy for Nigerians to invest in mutual funds.
2: Make a budget, next make a budget of what you plan to invest. Start with what you can afford to lose as investment carries risks.
3: Hire an advisor. This is optional but you can hire an advisor if you have the money. They will select the right investment strategy to meet your financial objectives.
4: Choose and research the type of fund you want to invest in and monitor your investment. This is the easiest way to invest, and practically all you need.
Tips for Investing that will help you
1: Build a team of investors you can learn from in case you came across resources you don’t know. Simply put, people you share the same mentality and know about the stock market.
2: Find out the expense ratios you will be paying for each fund you bought. This is also good because some investment strategies have higher management fees than others.
3: Research diligently and don’t invest your money until you learn practically everything about the fund.
4: Having a long-term mindset tends to be beneficial in the long haul. Always have the mindset to invest for the long term because it is the best strategy an investor could have for his investments.
5: Diversify your portfolio and spread wigs across different investment types if you have the fund. It will help manage risks and even consolidate taxes.
Read This..
- How to Invest in Index Funds in Nigeria
- 10 Tips to Help You Start Your Investment Journey
That’s A Wrap!
By following these tips, you should be able to understand the market and gain more knowledge of what you intend to achieve with your investments.
Always do your research as it is the most important part of becoming a successful investor. I wish you luck.
