Over the weekend, three friends —Emeka, Joe, and Mayowa— hung out at an upscale lounge somewhere in Lagos. As is often the case during such gatherings, the young men drank some liquor and talked about their jobs and the women in their lives. Most importantly, they talked about opportunities for making more money. Now, this aspect of their conversation underscored the fact that many young people have very troubling misconceptions about investing.
Ponzi schemes are considered investment
As the friends were discussing, Emeka was particularly interested in knowing if there was a new Ponzi scheme in town, after the massive collapse of MMM a few years ago. The 26-year old is fascinated by get-rich-quick schemes. As a matter of fact, he considers Ponzi schemes as the only form of investment that anybody should be thinking about.
Of course, Emeka couldn’t be more wrong to think that Ponzi schemes equate investing. The differences between the two are clear. For one, Ponzi schemes are illegal whereas proper forms of investment aren’t. But then again, for the hundreds of thousands of people like Emeka, none of these matters.
The truth is that many people in Nigeria have the falsest understanding of what investing really entails. Therefore, this article is aimed at breaking down some of the biggest misconceptions young people have about investing, starting with the one below.
Investing is for old people
This may sound unbelievable, but a lot of young people in Nigeria believe that investing is for old people. Financial expert, Kalu Aja, is familiar with this falsehood. While commenting on this topic, he shared some of the most ludicrous things he has heard such as: “Don’t save for retirement, you’re young. There’s no need to save at all; just hustle.”
Going back to the lounge where Emeka and his friends hung out over the weekend, a similar sentiment prevailed. Joe’s employer had recently set up a pension plan for him following the confirmation of his appointment. But the young man wasn’t happy over this, simply because a certain amount was meant to be deducted from his monthly salary to fund the pension plan. See his argument below:
“They said it’s good for me. But who cares about saving for retirement?! I am just 25 years old and will be working for the rest of my life…”
Again, Joe was wrong because nobody can work for the rest of their lives. However, someone’s investment can work for them by yielding interests that will sustain them for the rest of their lives. Therefore, do not be deceived into thinking that you can work all your life. A time will come when nobody will employ you again, because you will be too old. If by then you do not have other means of sustenance, you are going to wish you had arranged a good investment for your retirement while you were young.
Investments that do not guarantee 30% interest per month are not worth it
This is another misconception young people have about investing. It explains why many of them overlook legitimate forms of investments such as the stock market and prefer Ponzi schemes such as MMM. As Kalu Aja explained, it is greedy to think that any investment would ever guarantee you as much as 30% interests per month. If you rush into a Ponzi scheme with the hope of getting this, you shouldn’t be disappointed when it collapses eventually, as such schemes usually do. You could lose all your money just because of your greed.
I need all the money in the world before I can invest
Again, this is not true. While some forms of investment do require a lot of capital, there are other forms of investing that do not require you to have all the money in the world. A good example is mutual funds which specialise in pooling together investors’ incomes to form a large sum which can then be invested in select stocks, bonds and other forms of investments that will definitely yield you interest.
The riskier the investment the more rewards
Kalu Aja said he often comes across this misconception. As such, he was more than eager to debunk it. According to him, every form of investment has an element of risk, no doubt. However, it is not the risk that produces the reward. Therefore, thinking that an investment must be very risky for it to produce result is false.
“All rewards come from risk, i.e., volatility. But not all risks produce returns. Buying a Nigerian stock, for instance, is high risk because of the volatility characteristic of the stock market. Does the volatility guarantee any returns? No. investing should, therefore, be planned to mitigate against risks.”
Once I buy a stock, I’ll become wealthy
This is yet another misconception that prevails among young people in Nigeria. For whatever reason, they believe that making money through the stock market is an automatic process. For them, all you need to do is buy the stock and keep, and before long, it begins to yield tons of money for you. Unfortunately, it does not work like that.
Mayowa, who was mentioned above, learnt this the hard way. During the weekend hangout with his friends, he complained that he was done with investing because he hadn’t made any money from his bank stock. According to him, he bought N30,000 worth of shares a few years ago and was surprised to find out that the investment had barely yielded any interests years later. Therefore, he was convinced that investing is a useless venture.
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The truth is that Nigerian stocks are not one of those investment packages you just buy and keep aside. As Nairametrics’ publisher, Ugochukwu Obi-Chukwu, once explained, you have to look at owning a stock the same way you consider owning a pastry shop. Nobody just stocks their pastry shop, lock it up, and leave it to sell itself. Your NSE stocks are like your inventory. You need to periodically look at it and ask yourself important questions like “Is it earning money for me? Is it doing well?” If it’s not doing well, then you flip it. Be active with your stock because that’s the only way you can know it’s the right time to sell or even buy more.
There are many misconceptions young Nigerians have about investing. But for the meantime, we have only focused on the five discussed above. It is expected that reading this will help you do away with these falsehoods, just in case you are one of those who believe them. Investing is one of the best gifts you can ever give yourself; however, you must be wise about how you go about doing that.