There is no better time to start investing than now. Tomorrow is not an option.
– By Oluwatosin Olaseinde
I read a tweet once that claimed that 20s is for chilling and 30s is for building.
You have got to be joking! I am not sure I have laughed as hard as I did when I read it.
That tweet is so wrong. To build, you need a foundation. Your 20s is for laying a solid foundation – in this case, foundation with regards to investment. In your 30s and above, you can consolidate on the foundation laid.
Before I proceed, in case you are in your 30s and you feel this article isn’t for you. No, that’s not true. The best time to plant a tree was 20 years ago, the second-best time is now.
I started my first job 10 years ago, when I turned 21. And I had no savings culture or investment plan. This lingered for the first 5 years of my career. I went from zero salary to over one hundred thousand per month and my expenses surprisingly grew at the same pace.
Interestingly, over the years as I got an increase in salary, the same pattern occurred. I acquired new taste and my expenses grew at the same pace with my income.
Then I realized that in fact, it isn’t how much you earn but instead what you do with what you earn. I had lost 5 years of an opportunity to invest. I had lost 5 years to make my money work for me. A portion that could have been invested had gone unaccounted for.
Where do I start from?
Let me introduce you to our benchmark – Inflation.
Inflation measures sustained increases in prices of goods and services in an economy over a period of time. In other words, inflation signifies the time value of money. Tracking inflation from an investment angle ensures that what I can buy with N1000 in 2018, I can still buy it in the future with the N1000 plus the interest I earn on the N1000 capital. Whenever you are investing, look for opportunities that give you a return that is at the minimum, equal to the inflation rate. That way, the value of money is preserved.
What are your options?
- Savings account: This asset class offers an average of 5% per annum. Nigeria’s current inflation rate is 12.5%, as a result the returns on savings isn’t a good return for the money you worked hard for as it is not high enough to beat inflation.
- Treasury Bills/Government Bond: The government issues Treasury Bills (T-Bills) and Government Bonds when it needs to borrow money.T-Bills are short-term in nature while Government bond is long term. For T-Bills, the interest is paid in advance. So for instance if you invested N100,000 for a year and T-Bill rate is 12%, you will get the interest of N12,000 in advance. Government bond interest is paid every quarter.Always compare the rates on T-Bills and Bonds to inflation rate.
- Mutual Fund:This is an investment vehicle made up of a pool of moneys collected from several investors for investing in securities such as T-Bills, Bonds, equities, commercial papers and even real estate.
The most common one is money market fund. Your capital is secured and you can start with as little as N5,000. The rate ranges at 14%. With an inflation rate of 12.5%. This is a good place to start.
- Equities: The shares of a company measure its financial performance. Nigeria stock exchange was the 3rd best performing exchange in the world last year, it returned 43%;almost thrice the inflation rate. Do your research, choose fundamentally strong stocks and invest. Equity investment is a long-term play.
- Real Estate: Real Estate generates return via capital appreciation, due to increase in the value of the property, and through rental income. In a country like Nigeria, a bulk of real estate growth comes from appreciation of the property. Historically, real estate returns as high as 40% per annum. Location and purpose of property plays a critical role in value addition.
- Personal Development. This is my favourite class of investment. You – insert your name – are your greatest investment. Unlike all the other options, you are immune to inflation rates, currency devaluation or value erosion. Take that course that will take you to the next level, take up new challenges, prepare for new opportunities, read those books. Ensure you are deliberate about improving yourself.
It is one thing to know all the investment options available, it is another to take the right step. Time is a great currency here and the earlier you start, the better. It is easier to start now than trying to play catch up 15 years to retirement. Besides, you owe it to yourself to pay yourself first, which means investing now.
Editor’s note: This article was originally published in the Spark Magazine. Find the magazine here to read other articles.
Oluwatosin Olaseinde is a chartered accountant with over 9 years of experience spanning across accounting, audit, financial management and taxation. She is the Founder/CEO of Money Africa, a platform that enhances financial literacy and wealth management coaching. Prior to Money Africa, Oluwatosin was a commercial finance manager at British American Tobacco, providing commercial & financial advice on capital investment and managing marketing investment budget in the 14 different markets across West Africa.