By Akintola Benson – Oke
Investing is a tool for building wealth, but it is not only for the wealthy. Anyone can get started on an investing programme, and various vehicles make it easy to begin with small amounts and add to a portfolio periodically. In fact, what differentiates investing from gambling is that it takes time—it is not a get-rich-quick scheme.
It is important for you to understand what investing is, what it means, and how the “miracle” of compounding works. This knowledge should also cover some of the building blocks of the investing world and the markets, and provide some insights into techniques with the goal of helping you think about which investing strategies and vehicles are right for you as you prepare to retire.
What is investing? It is the act of committing money or capital to an endeavour with the expectation of obtaining an additional income or profit. Legendary investor, Warren Buffett, defines investing as “… the process of laying out money now to receive more money in the future.” The goal of investing is to put your money to work in one or more types of investment vehicles in the hope of growing your money over time.
Another view is that investing is really about “working smarter and not harder.” While most of us work hard at our jobs, whether for a company or our own business, we often work long hours, which requires sacrifice and adds stress. Taking some of our hard-earned money and investing for our future needs is a way to make the most of what we earn. In the case of the soon-to-be retirees, investing amounts to ‘working by not working’.
Again, investing is also about making priorities for your money. Spending is easy and gives instant gratification—whether the splurge is on a new outfit, a vacation to some exotic spot or dinner in a fancy restaurant. All of these are wonderful and make life more enjoyable. But, investing requires prioritising our financial futures over our present desires. Thus, investing is a way to set aside money while you are busy with life and have that money work for you so that you can fully reap the rewards of your labor in the future. Investing is thus a means to a happier ending.
In addition to explaining and demonstrating what investing is, I will also consider the different available investment vehicles in Nigeria. There are many different ways you can go about investing, including putting money into treasury bills, shares, bonds, mutual funds, real estate (and other alternative investment vehicles), or even starting your own business.
Every investment vehicle has its positives and negatives. Understanding how different types of investment vehicles work is critical to your success. For example, what does a mutual fund invest in? Who is managing the fund? What are the fees and expenses? Are there any costs or penalties for accessing your money? These are all questions that should be answered before making an investment. While it is true that there are no guarantees of making money, some work on your part can increase your odds of being a successful investor. Analysis, research and even just reading up on investing can all help.
Indeed, no one investing strategy or approach fits all. Every investor has different reasons for investing, different goals, different time horizons and varying degrees of comfort with investing. It is important to define and articulate your own parameters. What are your objectives for the money that you will be investing? Is safety of principal with some level of return sufficient? Are you trying to accumulate money for a longer-term goal such as a college education for your kids or perhaps a comfortable retirement for yourself? You might even have different investments for different goals. The point is that before you decide to invest any money, it is important to understand why you are investing and the end result that you are seeking.
It is good that you begin investing early to get good returns on your money. Doing so will help you prepare for retirement and properly invest your pensions and other benefits accruable to you after retirement. The administration of His excellency, Mr. Akinwunmi Ambode, is irrevocably committed to helping civil servants live comfortable lives both during and after active service.
All Lagos civil servants, and indeed all salary earners and businessmen and women should learn a lesson from the benefits of regular savings and investments, and start early to do so.
Benson-Oke, Commissioner, Lagos State Ministry of Establishments, Training and Pensions, writes from Alausa, Ikeja, Lagos.