Investment is the action or process of investing money for profit.
Transitioning to Investment, after doing the basic savings, is no walk in the park. Experts advise that you must have at least 6 months saving experience before delving into investment because just like every other step in like it won’t be rosy at the beginning, you will fail and learn but do not give up. Patience is a virtue and investment is the test. Experts say 6 but if you are a risk taker, 3 months can cut it.
Risk appetite can be described as the amount and type of risk an organization is willing to accept in pursuit of its business objectives, Risk tolerance is the specific maximum risk that an organization is willing to take regarding each relevant risk & Risk threshold is the threshold to monitor that actual risk
This 3 are in the investment personality bucket. The Risk Tolerance is divided into 3;
Low Risk Taker – Adverse to risks
Moderate Risk Taker – Can take risk but low risk
Moderately high-risk taker – Can take risk but not high risks or many risks
High risk takers – Iyalaya anybody! They take any risk and sometimes, many risks
Different types of investment
There are four main investment types, or asset classes, that you can choose from, each with distinct characteristics, risks and benefits. Once you are familiar with the different types of assets you can begin to think about piecing together a mix that would fit with your personal circumstances and risk tolerance.
These are more suitable for long term investors that are willing and able to withstand market ups and downs.
Shares help grow the value of your original investment over the medium to long term.
If you own shares, you may receive income from dividends, which are effectively a portion of a company’s profit paid out to its shareholders. The value of shares may fall below the price you pay for them because prices can be volatile from day to day and shares are generally best suited for long term investors, who are comfortable withstanding these ups and downs.
Also known as equities, shares have historically delivered higher returns than other assets, shares are considered one of the riskiest types of investment.
Property is an investment in a house or houses more like investment in real estate. The price of houses and other properties can rise substantially over a medium to long term period of time and it is not for the weak hearted
However, just like shares, property can also fall in value and carry the risk of losses. It is possible to invest directly by buying a property but also indirectly, through a property investment fund.
These are more focused on consistently generating income, rather than growth, and are considered lower risk than growth investments.
Cash investments include everyday bank accounts, high interest savings accounts and term deposits. They typically carry the lowest potential returns of all the investment types.
But they offer no chance of capital growth, as they can deliver regular income and can play an important role in protecting wealth and reducing risk in an investment portfolio.
The best-known type of fixed interest investments are bonds, which are essentially when governments or companies borrow money from investors and pay them a rate of interest in return.
Bonds are also considered as a defensive investment, because they generally offer lower potential returns and lower levels of risk than shares or property. They can also be sold relatively quickly, like cash, although it’s important to note that they are not without the risk of capital losses.
There are so many investments out there that you can get started with. As a beginner in investment, I advise you get apps like piggy bank app or cowry wise app.
ABOUT CONTRIBUTOR; FINANCE CHIT-CHAT
Financial independence is important and what everyone craves, both young and old. A lot of the time, people are clueless on how to achieve this because these things are not taught in schools. So, what can you do about it? You can join us every week as we engage in Mimosas and enlightening money conversations! Want to be rich and famous? Join the tribe @financechat on instagram and on Youtube!
Anchor – Benedicta Omoruyi
Production – Epilogues production