Posts Tagged ‘Stocks’

living high risk

March 5, 2021 Leave a comment
Impact: 'High risk, high return' theory for super stands up for young  investors – Monash Business School

Q: What is the definition of risk?

A: Having only one source of income.

I probably should have shared this earlier on in the year, but better late than never.

If most people learned anything in 2020, it is that it’s a terrible idea to have just one source of income. You need income coming in from, at least, one other source. If you don’t already, you’re living a very high-risk lifestyle. 

That said, it’s not enough to earn income from multiple sources, you also need to figure out the best way(s) to both preserve and increase the value of your earned income. In other words, you need to ensure the value of what you have saved isn’t shrinking. How? Investments.

Your money is a tool and you need to use it, not just save it. In fact, asides probably your emergency savings, keeping naira idly saved in some account is a very bad idea, in my opinion. With the official devaluation of the Naira and consistent rise in inflation this year (16.47% in January and 17.33% in February), if your money isn’t invested, you’re better off just spending it because the purchasing power of the naira (even if it’s a million) is diminishing by the day.

I think we can agree that a farmer who hoards seeds, rather than sow them towards a fruitful harvest is unwise. Yes, seeds are valuable, though not particularly in themselves, but in their potential to [under all the right conditions] produce even more valuable crops. The same goes for money.

Think of money as a seed. Money isn’t valuable in itself; its potential is where its true value lies. Therefore, sowing is wiser than hoarding. Hoarding in this context being “saving” in an account, whereas sowing is making investments.

Consider investing your savings in Agriculture, Blue Chip Stock or ETFs/Mutual Funds, Eurobonds, FX Trading, Real Estate, Transportation, or simply convert it to foreign currency (GBP or USD) and save that or buy Gold. You can equally start a small business for yourself. However, make sure it is a business you understand, has potential, and utilizes your skill(s). If you don’t have the time to run a business/side hustle, you can hire someone to run it. If you’re not entrepreneurial, you can buy equity/invest in one which shows promise; once again, ensure it is a business you understand.

It’s worth mentioning at this point that, while investing your money is wise, you cannot and never should put all your eggs in one basket. That is, you need to build a diversified portfolio by making multiple investments – seven or eight different types, is advisable. A diversified portfolio not only makes you extra income, it can act as a buffer; that is, should one or two not do so well, the others would most likely make up for them. For example, if at a certain point in time, the return on your real estate investments isn’t looking good, and your agricultural and delivery/logistics investments are doing great, they, overall, make up for the weak performance of the real estate investments.

Should you choose to invest, please be wise. Always seek the advice of an investment professional, or at least someone knowledgeable in finance, before making investment decisions. Also, because the process from seed to fruit takes time and patience, s/he could also help you figure out your risk appetite (risk-averse, conservative, balanced, or dynamic) to recommend investment solutions that match your goal(s) and personality. No matter what you have the stomach for anyway, be weary of high returns super fast. Yes, high risk typically brings high rewards, but remember, if it seems too good to be true, it most likely is. For example, I typically stay away from anything that guarantees more than 10% ROI (return on investment) per month. It doesn’t matter whether you are/have been getting your monthly or quarterly returns on schedule, the important thing is that the principal is safe and you get it back, on schedule. Bottom line, you need to make smart investments; legitimate opportunities are everywhere. Start early. Start ASAP. A word is enough for the wise.