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Editors Pick

Here are 10 actions that can make you a successful investor

Investors will tell you different stories containing contrasting investment strategies, multiple inspirations and different risk appetites.

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Here are 10 actions that can make you a successful investor, portfolio diversification

There is no one route to make you become a successful investor. In fact, most investors will tell you different stories containing contrasting investment strategies, multiple inspirations and different risk appetites. It makes you wonder.

While there is no single path to being successful, combining these ten actions would help you become a successful investor faster.

Start Investing Early

Sometimes, I wish I had started investing as early as when I was 18. I knew about stocks at the time but just thought that it was for those who had money. If at the age of 25, I had invested N8,000 every month at an interest rate of 10% without withdrawals, by the time I got to age 65, I would be worth N50 million. In fact, if you save N5 million today at an interest rate of 10% per annum without withdrawals, you will be worth about N226 million in 40 years.

Such are the effects of time and compounding interest on investing. Warren is said to have made his billions when he turned 60.

[Read Also: Nigerian Treasury Bills: Learn everything about Tbills]

Diversify your portfolio

Portfolio diversification is a model which a lot of investors use in building their worlds. This simply means avoiding putting all your eggs in one basket. You should put money into a portfolio of investments that include bonds, treasury bills, stocks and other Fixed Income securities. That way, you create a balance and hedge against risk.

Seek A Cash Cow

I have observed that one of the most important factors that determine wealth creation and sustenance is having a steady source of cash flow. It is no coincidence that many successful investors utilise investment vehicles such as insurance companies, mutual funds, and pension funds to create wealth.

The good news is that you do not need to start with such a large vehicle. A constant source of income, such as your salary or rental income, can be your cash cow.

[Read Also: A Billionaire recommends 3 Strategies to Create Wealth]

Stick to a principle

It’s hard to remain focused as an investor; However, that is one of the key pillars of a successful investor. Whether you decide to be a growth investor, a value investor, or a hybrid of both, just stick to that and remain consistent.

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I particularly like being a value investor because I hate to speculate and would rather invest after analysing fundamentals of the investment.

Choose the right bird(s)

Birds of a feather, they say, flock together. This applies strongly in investing and it is important that you select the right partners who can help you achieve your investment goal.

If you are starting out as a young investor, it is advisable that you surround yourself with friends who share similar interests with you. This helps improve your investing knowledge and broadens your mindset.

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Make Information Your number one asset

Information is one of the most important tools you need to be a successful investor. With good information, decision-making becomes easier.

You should try as much a possible to research, read and obtain every available information you can possibly lay your hands on before making that tough decision.

Don’t be afraid to accept failure

People say that when you fail, you should try, try and try again, but that doesn’t apply in all scenarios. Investing, of course, is one of such. When you make a mistake that leads you to a bad investment decision, do not be afraid to accept your fate and move on.

During the stock market crash of 2009, most people lost money when they actually knew that the market was tanking. They held on, thinking that things would turn out better when they should have sold off and cut their losses.

Save costs and live modest

You can’t be a successful investor and be running up costs without any form of control. No matter how much you make, curtailing cost is key to a successful investment life. It takes a lot to be conservative but it is worth all the effort.

Be Analytical

Successful businessmen undertake thorough feasibility studies before taking business decisions. They do this to avoid failure that could result from lack of basic understanding of the businesses which they are into.

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Investors should also approach the same model. If you have decided to invest in stocks, then you must analyse the financial statements of the company, its trends, as well as any information you can get regarding the stock.

Always Seek A Bargain

Warren Buffet is well known for buying quality stocks at a fair price. He goes in when others are afraid to go because he has analysed the company very well and identified possible entry points for acquisition of shares.

By seeking a bargain, your potential upside is nearly assured as the market will eventually see what you had seen ages ago, and reward you with capital appreciation.


This article first appeared on Nairametrics on January 14, 2014.

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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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    Currencies

    DEVALUATION: CBN updates website to official rate of N360/$1

    The central bank of Nigeria has devalued its official exchange rate from N307/$1 to N360/$1.

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    CBN website states oil price is still $61, Naira under pressure as Nigeria records poor export earnings, 4 key sectors the CBN plans to pump money into

    Just as Nairametrics reported, the Central Bank of Nigeria has devalued its official exchange rate from N307/$1 to N360/$1. The apex bank has now reflected this change on its website signaling a confirmation. The bank is yet to issue a press release to this effect.

    The CBN has now officially devalued by 15% moving from N307/$1 to N360/$1. Depreciation at the “market-determined” I&E window is 5% having moved from N360/$1 to N380/$1

    Devaluation: Nairametrics reported yesterday that the Central Bank of Nigeria (CBN) sold dollars to banks at N380/$1 in a move signifying a devaluation of the currency. Banks trading at the Investor and Exporter (I&E) window bought dollars at N360/$1 from the CBN on Friday, March 20, 2020. The I&E window is the official market where forex is traded between banks, the CBN, foreign investors, and businesses. The central bank typically buys or sells in the market as part of its intervention program.

    The CBN has updated its website with the official exchange rate.

    Nairametrics also got hold of a letter from the CBN to banks informing them of the new exchange rate for dollars flowing from the International Money Transfer Operators (IMTOs). According to the CBN, IMTOs will sell to banks at N376/$1 while banks will sell to the CBN at N377/$1. The CBN will sell to BDC’s at N378/$1 while the BDC’s will sell to end-users at “no more than” N380/$1.

    Single Exchange Rate: A report yesterday also suggested that the CBN also planned to move to a single exchange rate policy for determining the price of the dollar. A senior central bank official who does not want to be identified, said, ‘Today we allowed the rate at the importer and exporters (I&E) window to adjust in response to market developments.’

    The central bank has now made an apparent u-turn after it had initially that the “market fundamentals do not support naira devaluation at this time” detailing reasons why it did not need to devalue.

    Falling oil price: Oil prices fell to under $20 on Friday before climbing back up to settle at $23 per barrel. Nigeria’s Bonny light trades at $26 while the benchmark Brent crude trades at $29 per barrel. In response to the crash in oil price, Nigeria’s announced a cut to its 2020 budget by N1.5 trillion as it faced the reality of a potential drop in its revenues. Nairametrics also has information that state governments are getting jittery about their ability to sustain salary payments as a reduction in their federal allocation “FAAC” is anticipated.

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    Career tips

    Investment options for salary earners

    Investment options for the salary earners
    #Investing #Entrepreneurs #Investment #Salary #Wages

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    Investment options for salary earners - bank loan

    Recently, one of the readers of my articles asked to know what investment options are open to salary earners. A salaried individual is like everyone else except that he or she has a fixed monthly income. This implies that their investments and expenses have to be managed strictly according to their fixed monthly income.

    Since salary is assumed to be the only source of income for the salaried, it is advisable that such an individual fortify himself financially before investing so that adverse investment performance will not have untold effect on him and his family. Therefore, if you are a salaried prospective investor, you need to:

    READ: Where to invest N500,000 right now

    Get life insurance

    Most families in Nigeria are single income families so much such that if anything bad happens to the income earner, the family gets shattered, at least financially. Again, given the risks inherent in capital market investments, it is only prudent to have a life insurance as a first step in one’s investment journey. It is very baffling to see many investors very deep into the market, yet they do not have life insurance.

    [Read Also: Understanding the risks in bond investing]

    Life insurance is and should be a basic part of any financial plan. Life insurance is a protection for loved ones against financial hardship arising from the death of a breadwinner. This is even more important today than ever before with high cost of funeral expenses, college education and medical bills. So, the first investment option for a salaried individual is to get a life insurance.

    Prepare for financial emergencies

    Life is full of surprises, emergencies do happen, jobs are lost without notices, and even good investment opportunities emerge sometimes suddenly. There is, therefore, the need for a cash reserve to help weather the financial storms and emergencies when they come calling.

    READ: SEC issues pre-notice on cancellation of certificates of 157 inactive CMOs

    Cash reserves do not only provide for emergencies, they also help to ensure that investments are not liquidated prematurely or at inopportune times to cover unexpected expenses. There are no hard and fast rules on what the exact amount of the required cash reserve should be, but most financial experts and planners will advise that an amount that equals about six months of living expenses be set aside.

    So, as a salaried person, your next investment should be to have a cash reserve. A cash reserve should not necessarily be in a savings account or under the mattress; it could be in an interest-bearing money market account, money market mutual funds with low to zero luck-up period or another form of very liquid investment that is readily convertible to cash without loss of value.

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    [Read Also: Understanding the risks in bond investing]

    Know your risk appetite

    As a salaried and fixed income individual, your risk appetite is most likely going to be low as well as your risk tolerance, although your extended family profile could change all that. You need to know or understand your risk tolerance before you engage in any capital market investment.

    Your risk tolerance will and should drive the type of investments you go into. Your risk tolerance depends on your psychological makeup, your current insurance coverage, presence or absence of cash reserve, family situation, and your age among others.

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    READ: Here’s what will happen to Nigeria’s insurance sector in the short to medium term

    Talking about family situation, it is reasonable to think that a married individual whose children are still in school will be more risk averse than an unmarried person. On the other hand, older people have shorter investment time horizon within which to make up for any losses. the reason for this is because the older you get the less time you have to work to recoup on losses.

    In that case the risk tolerance of an older man will be less than those for younger folks. Again, the more cash reserve and insurance coverage you have, the more your propensity to take risk. Now having known your risk tolerance based on the underlying factors, you can then define your investment objectives

    [Read Also: Important tips on how to profit in a bearish market]

    Set your Investment objectives/goals

    Having met those essentials above, you are now ready for a serious investment plan or program. A good investment plan starts with investment objectives. Investment objectives are the force that determines what you invest in. Investment objectives range from capital preservation, to capital appreciation and constant income generation.

    Capital preservation as an investment objective implies that you, the investor, aim at minimising the risk of loss by maintaining the purchasing power of your investment. So, if you are risk averse or you will need money from your investment soon for children’s education or for building a house or you are nearing retirement, this should be your objective.

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    READ: CBN debits banks N216.1 billion for CRR compliance

    Investors whose aims are to see their investment portfolios increase in real terms over a period of time are better suited for capital appreciation as an objective. This is better for investors that are more risk tolerant and those with more potential to recoup on losses along the way.

    If you are already retired or nearing retirement, and therefore depend on your retirement plan supplemented by investment income, you need an investment that generates income rather than capital gains. In that case, your investment objective should be current income generation. It is always good to have investment goals stated in terms of risk and returns.

    [Read Also: I-Invest generates over N2 billion transaction in less than 6 months]

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    Decide on asset allocation

    Armed with the knowledge of your risk appetite and investment objective, you are now ready to decide on what to invest in, and how much to invest in any asset class. This takes you to asset allocation decisions. Asset allocation involves dividing an investment portfolio among different asset classes based on an investor’s financial requirements, investment objectives and risk tolerance.

    A right mix of asset classes in a portfolio provides an investor with the highest probability of meeting his/her investment objectives. Asset allocation is the most important investment decision an investor can make in a portfolio because it demonstrates an investor’s understanding of his or her risk preferences and return expectations.

    READ: How to build a profitable Mutual Fund Portfolio

    It is good to strive for a diversified portfolio. Unfortunately, the Nigerian market does not provide a lot of asset classes for optimal diversification, but diversification can be achieved across sectors or industries within the few asset classes in the Nigerian stock market.

    Decide on how to invest

    There are different ways to invest in the capital market. You can invest directly by making the stock selections by yourself, thanks to the online stock trading platforms that abound the world over. This implies that you have what it takes to conduct the required research and analysis of the companies whose shares or stocks you wish to buy.

    [Read Also: How I Would Invest My Mother’s Retirement Funds]

    It also implies that you have what it takes to know when to sell or add to existing positions. Another method is to have someone “do the heavy lifting” for you. In this case, that someone, often times called fund manager or portfolio manager, does the research and analysis and selects shares that suit your investment preferences, investment objectives, risk tolerance and appetite as well as your investment time horizon.

    This route is most suitable for investors that lack the knowledge and time for the required research and analysis. If you decide to go this route, mutual funds are the best bet for you.

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