Poor investment decisions

On this platform, we preach a lot about investing. It is a habit everyone must inculcate and nurture as route to financial freedom. However, investing can also lead to financial ruin if you make the wrong choices. Here are examples of investment decisions that can lead to financial ruin.

Speculative investing

Speculative investing involves putting your money into volatile high yielding investments. Speculators as the word implies, rely on guts rather than fundamentals to invest in asset classes that they believe will produce astronomically high returns. Initially, these investments produce very high returns as more and more people join the speculative train.

However, as is often the case, such volatility don’t last forever and most speculators, especially the ones that came much later, get caught up in the eventually crash. An example, is the forex crash in 2017 where the exchange rate crashed from as high as N520 to as low as N400 within a space of one month. A lot of speculators who had bet that the naira will depreciate further and bought at above N500 lost millions of naira in the process.

Buying real estate 

I knew some guy who felt the need to acquire landed assets and not lose out in what was called “the new Lagos”. He invested a lot of money buying up lands from land owners and communities without bothering to confirm if the lands in question had legal title. Years later, he found himself fighting with land grabbers and people who also claimed ownership to the land.

Real Estate is a great form of investing but only it is only as great as the title documents attached to it. If you do not have legal ownership to the land as represented by a certificate of occupancy then you are setting yourself up to lose all your investments

Real Also: CAREER TIPS: What you need to know to become an effective negotiator

Investing in a Ponzi Scheme

Ponzi (Pyramids) Schemes or HYIP (High Yield Investment Programs) are one of the easiest form of making money and also one of the easiest at losing. Most times they are made known to us by friends and family members who may have made massive returns investing in them. Unfortunately, more people lose more money investing in them than they make from them.

They are mostly not backed by any asset or significant investment as such people only make money from them when other contribute. The money contributed by the last to get in is shared by those who contributed before them and so on. The scheme collapses and everyone losses when there are no more contributors. NEVER INVEST IN THESE SCHEMES

Investing money in the wrong fund

Recently, a well-known Discount house collapsed and innocent savers lost money. A lot of the of the victims had invested their savings with a company with a history for delivering good returns. Unfortunately, they believed so much in the Discount House they didn’t bother to diversify their portfolio and instead trusted all their savings with the House.

Most of the money lost to banks and other financial service providers is from investments in Fixed deposits, certificate of deposits, mutual funds etc. Whilst these are all good investment schemes, they carry quite some downside risk that an innocent investor might not know about.

Unlike FGN Bonds and Treasury Bills which are safer and guaranteed by the Government in full, Fixed income securities with Financial Service Providers is only as safe as the solvency of the provider. If the provider goes bust so goes your money. You should hence be careful and scrutinise the provider like you would if you were lending to an individual.

Wrong Business

A retired civil servant invested his gratuity and savings in a business he thought was going to earn him a lot of money. Whilst the business was a good one, he unfortunately went in at the wrong time. He didn’t realise a cartel controlled the business and failed to grasp the immense need for good distribution network. By the time his goods arrived, the selling price had crashed 20% below his cost price. By the time he was done selling, he only managed to recover 50% of his investment.

When you invest in the wrong business, you basically have thrown your money away. Before making an investment decision in a business that you either own or don’t own, it is important to conduct proper research, feasibility study and due diligence before investing. Most people who do not end of losing their hard-earned savings.

Owing too much

Most times, people who borrow do so with a mindset of using the money for a purposeful investment. However, when you owe too much there is tendency not to save or invest. It is a vicious cycle that is hard to come out off. Your so-called investment may become a burden as you end up paying back your borrowers leaving you with little or nothing.

A startup in the business in the business of printing and stationery soon faced this problem after they found it hard to balance paying back a loan of N10million and reinvesting in the business at a stage where the business required more time. Soon the business closed shop.

 

Coronation Research
Nairametrics is Nigeria's top business news and financial analysis website. We focus on providing resources that help small businesses and retail investors make better investing decisions. Nairametrics is updated daily by a team of professionals. Post updated as "Nairametrics" are published by our Editorial Board.

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