Read This Before Investing

So you've heard/ read a lot on how saving for the future is important and how you should invest to increase your streams of income. But you are not even sure on how to start or how to go about it. Here are the things you should consider before you start investing.

A) Assess your Current Income and Expenditure

Your income and expenditure plays a big role in determining the amount you will be able to invest and what you can invest in. It is important you are not spending more than you are earning when planning to invest. If you plan on making periodic payments (i.e monthly/quarterly/annual payments) into a mutual fund for example, ensure the payment is convenient. Don't bite more than you can chew. Intending investors should look to invest at least 5% of their monthly income.

B) Define your Reason for Investing.

This is very important and will basically define your investment plan. People invest for different reasons, some invest to earn passive income, some to save towards a project, some for retirement, others for their kids etc. The mistake most people make is to invest for investing sake, they just want to make/save money. Please don't invest for investing sake have a definite reason for investing

C) Define Your Time Horizon

Your time horizon is the length of time you plan on investing. Are you investing for a long term or short term. Those that invest for investing sake, just buy an investment instrument and keep it. No don't do that, have an entry and exit plan. Read on the instrument you are investing in and follow its trend in the market. If you don't have the time, then employ the services of an investment manager/ consultant. Don't just buy and keep. It's not a fancy jewelry.

D) Understand Your Risk Preference

I've discovered that a lot of people want to take very little risk and earn high interest, it doesn't and will never work that way. Your returns on investment is determined by the amount of risk you are willing to take. Don't invest in secured instruments and expect to earn high returns it will not happen. Besides, the amount you are investing determines how much risk you can take. No matter how much of a risk loving person you are, if your capital for Investment is low, your risk and return will be low.

E) Diversify

This was the mistake a lot of people made back in 2007/2008. Someone invested N800,000 in Bank PHB stocks (now Keystone Bank), he lost every Naira. Spread your investment, don't invest in one asset class. The more diversified your investment, the less risky it is.

F) Seek Advice

This is the part we are not yet conversant with in Nigeria. It is important you consult investment experts before you take investment decisions. They are better informed so, they give good guidance. Don't just assume because someone works in a stockbroking firm/finance house he/she should know about Investment, NO!!! ask investment experts. If you cannot afford an investment consultant then do your own research. Read materials on investment and  gain knowledge before you invest.

Follow these guidelines and you will make wise and profitable investment decisions.