You’ve read about investing, you’re excited and want to get started. You have ₦10,000 that you can do away with, but where do you put it? Let’s find out.
Before we put our money anywhere, we need to be sure of 3 things.
- Do you have debt?
- What’s your risk appetite? Can you handle bad market days without panicking and pulling everything out?
- Is this money you might need urgently in the next 2 to 5 years?
If you answered no debt, yes I can handle bad days, and no I don’t need it anytime soon, then we’re ready to go.
Before we dive in, let’s figure out which investor you are.
Investor A: The Curious Beginner
You’re new to this but you want to see your money grow and you’re okay with a little risk as long as you’re learning along the way. Money Market Fund, Stocks.
Investor B: The Patient Builder
If you like playing the long game and want to invest for 10, 15, 20 years, but still wanting your money to pay you back regularly along the way through dividends? Stocks (dividend paying companies like MTN, Zenith Bank), Equity Fund, Index Fund
Investor C: The Hands Off Investor
You don’t watch the news, you don’t want to think about market trends and you definitely don’t want to be making decisions about which company to buy. You just want to put your money somewhere smart and leave it alone to grow. Money Market Fund, Index Fund, Equity Fund (fund manager does everything for you).
So where does your 10,000 go?
A money market fund is the most recommended investment for beginners.. You put your money in, and behind the scenes the fund manager takes that money and lends it to governments and big companies for short periods of time. They pay interest for borrowing it and that interest comes back to you. You didn’t have to do anything. You didn’t have to watch any news or understand any chart. It is low risk with very steady income.
The stock market is very popular, you must have heard about it. Investing in the stock market is simply buying shares from companies which makes you shareholder. This means you own a part of the company. If the company makes profit, you make profit, if the company is at a loss, you feel it too. Earning from the stock market are in two ways.
The first is called capital appreciation. This means the value of your share goes up over time. Let’s say you buy one share of a Nigerian company for ₦50 today. The company grows, performs well, more people want to buy its shares and now that same share is worth ₦80. You didn’t do anything, the value just went up. If you sell at ₦80 you’ve made ₦30 profit on that one share. Multiply that by however many shares you bought and that’s your gain.
The second way is dividends. Some companies like MTN, Zenith Bank or Dangote share a portion of their profits with their shareholders every year. So just for owning their shares, they send you a payment. You just owned a piece of the company and they paid you for it. That’s passive income.
An equity fund is like joining an investment group where everyone contributes money and one very knowledgeable person decides where it all goes. That person is called a fund manager. They study the stock market, pick the best performing companies and invest your pooled money into their shares. When those companies do well, everybody in the group benefits. When they don’t, everybody feels it too. The difference between this and stocks is that you’re not picking anything yourself, someone who does this for a living is doing it for you.
Index fund is actually what Warren Buffett recommends for everyday people who aren’t professional investors. It is like a basket of stocks. So if you invest in an index fund that tracks the top 50 companies in Nigeria, your money is automatically spread across all 50 of them. If the overall market grows, you grow with it. If one company crashes, the other 49 cushion the blow.
One more thing! Do not buy shares of a company just because someone on WhatsApp or Twitter said it’s the next big thing. Do basic research. Is the company profitable? Has it been paying dividends consistently? Is it growing?
A treasury bill is basically you lending money to the Nigerian government for a fixed period of time, usually 91 days, 182 days or 364 days. In return they pay you back your money plus interest when the time is up.Treasury bills are one of the safest investments you can make. The risk is almost zero because the Nigerian government is backing it. It used to be that only rich people and big institutions could buy treasury bills because the minimum was very high. But with apps like Ladda, you can now access treasury bills from as little as a few thousand naira.
You don’t have to do all of them at once. Even starting with just the MMF is a win. The goal is to start, learn as you go and add more as you earn more.
Finance Series
By Jesutofunmi Olowoniyi • Money Africa × Ladda Student Club
Money Africa × Ladda Student Club • Finance Series • Episode 03