How to invest;  Investment strategy

What is "Investing"?

Investing allows you to grow your savings so that you can achieve your financial goals. Although investing comes with risks, it generates better returns than saving your money in a bank. Furthermore, compounding allows you to earn more by re-investing the money you earn on your investments. If you start your investments early, time and compounding will multiply your wealth beyond your imagination over a long period.  An investment is an asset or property acquired to generate income or gain appreciation. Appreciation is the increase in the value of an asset over time. It requires the outlay of a resource today, like time, effort, and money, for a greater payoff in the future or for generating a profit.

More than 60% of American households own stocks today, either directly or through investment funds. Yet for many people, the world of investing is still mysterious, with unfamiliar terms and concepts.

The good news is that successful investing doesn't require advanced math skills or complex strategies. Instead, it starts with understanding the basic building blocks of investing known as asset classes and how they fit together. From the relative safety of a savings account to the growth potential of stocks, each type has different potentials for risk and rewards.

Understanding where these different assets stand on the investment risk ladder can give you a solid foundation for getting started in investing. We'll take you through this below.

Many people just like you turn to the markets to help buy a home, send children to college, or build a retirement nest egg. But unlike the banking world, where deposits are guaranteed by federal deposit insurance, the value of stocks, bonds, and other securities fluctuates with market conditions. No one can guarantee that you’ll make money from your investments, and they may lose value.

The U.S. Securities and Exchange Commission enforces the laws on how investments are offered and sold to you. Protecting investors is an important part of our mission. We cannot tell you what investments to make, but this website provides unbiased information to help you evaluate your choices and protect yourself against fraud.

Before you invest

• Pay off your debts first — pay off any loans, such as a credit card or personal loan.
• Have emergency savings — aim to have enough set aside to cover three months’ expenses, so you don’t have to sell an investment if you need cash quickly.

Prepare to invest

• Develop an investing plan  define your financial goals, risk tolerance and investment time frame   Be realistic and make sure you are comfortable with your choices. 
• Research different asset classes  understand the risks and returns of different asset classes, and how they can help you reach your financial goals. Higher returns mean higher risks or even a scam.
• Understand what you're investing in  understand the pros and cons, and make sure you can explain how it works to someone else. Look at the fees and charges, and legal and tax implications. Understand whether you invest directly or do you need to invest via a broker or fund manager?
• Beware of investment scams  keep an eye on warnings and alerts, and read about how investment scams work.  Be cautious when transferring money for investments and always cross-check the bank account details. Independently look up contact details for a financial firm using AFCA's list of providers
• Consider getting financial advice  financial advisers can help you develop an investment plan and discuss your goals in detail.  If you don’t want to use an adviser, consider discussing your investment plans with a trusted friend or family member to get a second opinion.  
• Diversify your investments  spread your money across and within asset classes to lower your portfolio's risk.

Monitor your investments

• Keep track of your investments  keep your paperwork and review your investments regularly and make sure you are on track
• Have an exit strategy   check how you can get your money back if you need to. Are there fees for withdrawing your money early? Can you easily sell your investment if you need to

Types of investments 

Below is a list of some of the diverse investments you should know about:

Stocks

Investing in stocks allows you to buy shares of ownership in a company and potentially earn a return through dividends or capital appreciation (increase in share price). The Nigerian stock exchange (NSE) is the primary stock exchange in Nigeria and offers a range of listed companies across a variety of sectors.

Bonds

A bond is a long-dated debt instrument that allows an investor to lend money to a government or company in exchange for periodic interest payments and the return of principal at maturity.

Mutual funds

Mutual funds offer a way for investors to gain exposure to a wide range of assets and can be a good choice for those who are new to investing or don't have the time or expertise to manage their own portfolios. For a fee, fund managers pool together the money of multiple investors, to buy a mixed basket of stocks, bonds, and other securities.

Real estate

There is strong demand for housing and commercial property in Nigeria. Real estate investments can take the form of owning rental properties, buying and reselling properties, or investing in real estate development projects.

Alternative investments

Essentially, investments that are outside the traditional stock, bond, and cash market, such as hedge funds, private equity, venture capital, and infrastructure funds.

Remember, all investments carry some level of risk thus, diversification, working with a financial advisor, and regularly reviewing your investments can help mitigate risk and increase your chances of success.

Overall, Nigeria is a diverse and dynamic market, offering a range of lucrative investment opportunities for both domestic and international investors.

Investments and Risk

Investment return and risk commonly have a positive correlation If an investment carries high risk, it should be accompanied by higher returns. When making investment decisions, investors must gauge their risk appetite. Some may be willing to risk the loss of principle in exchange for the chance at greater profits. Alternatively, extremely risk-averse investors seek only the safest vehicles. Individuals closer to retirement commonly choose safe investments.

Because investing is oriented toward future growth or income, there is always a certain level of risk. An investment may lose value over time, a company may go bankrupt, or interest rate fluctuations may affect bonds or real estate investments. Investors can reduce portfolio risk with a broad range of investments. By holding different products or securities, an investor may not lose as much money as they are not fully exposed in any one way.

How Do Investments Work?

There are many forms of investing, but in general, you use your money to purchase an asset (that you have educated yourself about) to provide income or grow in value.

What to Invest In As a Beginner?

Some of the simplest and most inexpensive ways to begin investing is in a retirement plan such as a 401(k) through your employer, an IRA, or an exchange traded fund (ETFs). ETFs generally have low starting amounts, such as $1, and have very low fees.

Understanding the investment risk ladder, which moves from safe cash holdings at the bottom to volatile alternative investments at the top, gives you a good way to think about building your portfolio. You can start with simple, widely used investments like index funds that track the broad market. As your knowledge grows, you can explore other rungs that match your goals and risk tolerance.

Remember three key principles: Never invest in something you don't understand, ignore "hot tips" from unreliable sources, and spread your money across different assets. And consider consulting only with free only financial advisers. They get paid for their time rather than for selling specific products, so their advice is more likely to put your interests first.