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“I lost all my savings in the stock market. My
friend told me to put everything in bank shares, I did and lost everything.
After what happened to me in 2008, I will never ever invest in the stock market
again” Seyi – Lawyer

“Don’t mention the stock market to me! Let me
just keep my money in the bank – at least it is safe – I don’t know how I will
educate my children with this 2% interest I am getting, but God is in control”
Chinedu – Trader.

Being cautious or afraid of losing money is
sensible; the problem is when the fear causes you to be paralysed into doing
nothing. Too many people continue to sit on the sidelines and have abandoned
the stock market completely having been badly burnt. Some played the market too
aggressively without a full understanding of the risk involved and the possible
consequences. Investors are most vulnerable when they let emotions come into
play. When markets nosedive, many “investors” bail out, when the markets remain
undervalued, they do nothing, and when the markets begin to soar, they regain
their confidence, jump on the bandwagon and dive back in and the cycle
continues.

It is important to understand your money
personality. Instead of investing your money in stocks or in real estate, do
you find comfort in putting all your money in the bank guaranteed investments
even though you are likely to earn interest at very low rates? If you are
totally risk averse, you can expect very little prospect of real growth as
guaranteed investments will hardly keep apace with inflation.

Regardless of what you think of the stock market,
earning 2 – 3 per cent on all your savings will make it challenging to achieve
ambitious financial goals. Depending upon your particular circumstance, your
age and time frame and your overall financial plan, consider putting at least
some portion in the capital market; this offers the best prospect of real long
term growth.

Set yourself clear goals

The best way to navigate the investment
environment is to have set goals in place and a clear plan on how to achieve
them, before you put any money down. Your plan will provide you with direction
on how to invest your money.

If you have clear goals, your focus will largely
be on accomplishing them rather than on your short, medium and long-term goals.
You will not be concerned about whatever may be happening in the short term in
the stock market, as these may include funding your children’s education or
making down-payment on your new home. Where you have concrete goals that you
are working towards, you will not be easily swayed by market volatility.

Seek professional advice

It is always useful to seek professional advice,
particularly where you don’t have the time, expertise or inclination to manage
your own investments. If you are not an experienced investor, it pays to use a
tested investment manager to help you follow through with your plan.

Not even the most skilled investment advisors in
the world could have protected investors from the recent losses suffered
globally, but an experienced team with a good track record can dispassionately
re-examine your investment goals, time frames, risk tolerance, and your current
financial situation and structure an appropriate savings and investment plan
for you.

Don’t depend solely on your investment advisor;
make every effort to build your knowledge of investing as there is a plethora
of information all around you.

Think Long
Term

One of the best ways to build sustainable wealth
is to take a long-term view of investing; this is probably one of the most
important pieces of investment advice there is. It is important to keep your
overall perspective in view and not be destabilised by market vagaries. When
you focus on the long-term, you will avoid taking drastic unplanned actions in
response to short-term news, rumour, events and emotions, which to a large
extent influence the ups and downs of the market.

Sound, well thought out investments, held over a
long period will usually weather turbulence. As a good long-term investment
plan should anticipate both good times and bad investors should be in a better
position to ride out any short-term volatility without being forced to sell at
a loss.

“Don’t put all your eggs in one basket” It is
tempting to concentrate your available funds in just one or two investments,
but this is also very risky. Build a diversified portfolio across asset classes
including stocks, bonds, cash, and property. If one investment performs badly
or fails, a variety of different types of investments are less likely to.

If you plan to invest, it is important to
separate your short-term savings from your long-term funds. Try to estimate
your cash needs and where they will come from for say the next two to three
years. Are there some large school bills looming or are you planning to retire within
the next two to three years? If you have enough cash in the money market to
tide you over any volatile periods, you will not have to liquidate investments
prematurely to provide cash to meet ongoing cash needs or in an emergency.

The money you can afford to put away for a long
period of time would be appropriate for equities and other assets with
potential long-term growth. Mutual funds from reputable financial institutions
are an ideal option and particularly attractive for those with smaller parcels of
funds to invest, as they offer both a diversified portfolio and professional
management.

Invest regularly

If you are afraid of investing at the “wrong
time” adopt a cost averaging strategy. Instead of trying to time the market,
invest on a regular basis in an appropriate vehicle, and even when your
finances are stretched. It is a particularly useful tool in a volatile market
as you can reduce the average cost of your shares by purchasing more shares
when prices are low and fewer shares when they are high. A consistent
disciplined approach takes away the speculative element of investing and
reduces stress and fear.

Learn from these unique times, the challenge for us all is to be realistic
about our expectations of the market and our investment returns. If you set
reasonable long-term profit expectations for your investments you will be more
accepting of the inevitable periods of market upheaval. If you stay the course,
and continue to build upon the foundations of a sound investment strategy, you
can achieve your financial goals.