BEFORE YOU INVEST YOUR HARD-EARNED CASH In my last post, I told you what to consider before choosing an investment scheme. These included your age, your level of income and the circumstance surrounding you at that time of your life. When you have considered those three, you should now know which level of investing you should start from. There are three levels of investment. They include investing to be secure, investing to be comfortable and investing to be rich. You should structure your investment choices to be in this order. First, you have to invest to be secure. On this level, you are investing to make sure that you can always be able to put food on your table at anytime, shelter your family by affording a good accommodation for them and providing them with modest clothing. It also involves investing to ensure that you can afford to give your children basic education without running into complications. When you are sure you are secure, that is, you are able to provide the basic needs of your family without any hassles, then you should move on to invest to be comfortable. This includes affording to buy a good car, build your own house and take care of some of the needs of your extended family. This also involves training your children to any level academically. When you have achieved financial security and comfort, then you can start investing to be rich. Investing to be rich here is to be able to afford various forms of luxuries which are not available to the middle and low class, like buying exotic cars, building , sending your children abroad for studies, accumulating wealth to pass on to your progeny, etc. As you should have known by now, the more you move up the level, the riskier the type of investments for you (though the more profitable it gets). If you are not yet secure and you try investing in the investments for the rich, you will be in for serious financial wreck if anything goes wrong. That is why you need to be comfortable before trying to invest like the rich; so that you can at least live comfortably even if the investment fails. It is being said that the rich do not sleep at night out of worry about their investment (the reason given by many for remaining poor). That to me is a fallacy because you can only worry about your investments if you will be wrecked should the investment fail. In investing, the advice is always not to invest more than you are willing to lose. Many lucrative investments require big capital which a rich man can afford to lose, but a poor or average man may not afford to lose. So it is necessary to move up one step at a time: from being secure to being comfortable and then to being rich. Investing at the secure and comfortable level should be very stress-free and almost risk-free for you. Probably, at this time, you might still be working for your employer and lack the time, knowledge and maybe, resources for you to spot, analyze and embark on some investments. So I do always advise that at this stage, you should turn your money over to professional investors/fund managers to help you manage and grow your funds (I will talk more on this in subsequent editions of this column). In my next post, I will be writing on the various investment options available for you in the three levels of investment which I have already explained above, starting from “investing for security’’. But before I go into that in my next article, let me briefly tell you what you should consider before deciding to invest on any of the investment options I will be listing from my next article or any other investment opportunity that comes to you. Some I have said before, but needs to be reiterated due to its importance. They are: 1. WHAT EXACTLY IS THE INVESTMENT? You should understand perfectly any investment opportunity brought to you. It is your right to know every detail about it. You should ask as much questions as you can and know as much as you can about the investment, after all, it is your hard-earned money that you are going to risk. The more you understand the investment opportunity, the more you will be able to make the right decision on whether or not to invest in it. If the proposer of such investment cannot explain such investment succinctly in three to five minutes, then he probably does not understand the business himself and so is not wise for you to invest in it. 2. WHO ARE THE PEOPLE BEHIND THE INVESTMENT? You should know the people behind whatever investment you want to make. Are they qualified in terms of education and experience to run or manage such investment? How long have they been into it? What do their other investors say about them? Is their performance history for at least the last five years impressive? If the people behind it are people of proven integrity, knowledge and experience in the proposed investment, then you may consider investing with them. If the result of this check is on the negative, then you should not think twice about running with your money. 3. WHAT IS YOUR RISK CAPACITY? How much risk can you carry? How will life be if the investment fails? Will you be devastated or you can still be okay with yourself and your dependants? An investment is risky if you cannot sleep at night after you have invested your money. It is always safe to invest only the amount you can afford to lose. So if the investment brought before you is more than your risk-carrying capacity, simply decline such offer. Don’t because of greed invest in something that will give you sleepless nights. 4. HOW SOON WOULD YOU WANT YOUR MONEY BACK? There are many reasons for investing like I have said earlier in my previous articles. It could be to build a house, to buy a car, to send your children for education abroad, for your retirement period, etc. Your reason for investing will determine how quick you would want your cash. For instance, someone who wants to buy a car in the next six months would go for a short term investment, while someone who wants to invest for his retirement will go for a long term investments. So when an investment is brought to you, you should know when your money and or profits are likely to come back to you. This will enable you to determine if it fits to your financial goals and thus whether you will like to invest or not into such investment. In conclusion, it doesn’t matter the type of investment brought to you. You should run these checks on them before investing your money into it. Remember the more informed you are about the investment, the more you reduce the risks you will take.
Posted on: Sat, 14 Sep 2013 12:23:58 +0000
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