Who says the market is risky?
Investing is less about creating wealth and more about protecting your wealth. With inflation above 10{0e8f7bd8c71c3fa1e819cfb1aa70ecae2274073187993a957764108fb0a6b833}, earning a return on your savings below 10{0e8f7bd8c71c3fa1e819cfb1aa70ecae2274073187993a957764108fb0a6b833} is a recipe for real capital erosion. You will make money, yes, but the purchasing power of your savings is less because inflation rose faster. This is why investing is more about outperforming inflation than your peers.
Losing money in investment is worse than underperforming inflation because it’s a double loss for you. If you invested N100,000 and you lost 10{0e8f7bd8c71c3fa1e819cfb1aa70ecae2274073187993a957764108fb0a6b833} after a year and inflation grew by 10{0e8f7bd8c71c3fa1e819cfb1aa70ecae2274073187993a957764108fb0a6b833} that year, you may have N90,000 with you but the real worth of your money is around N80,000 since you suffered a capital loss of N10,000 and another purchasing power loss of N10,000. This is what makes investing so important and need to be right on your investment choices so imperative.
Warren Buffet properly captures this idea with his 2 golden rules to investing are:
- Never lose money
- Don’t forget rule number 1
The type of investment perfect for anybody depends on the risk tolerance, return expectation and investment horizon of the individual. Don’t chase returns and leave yourself exposed to risk, it usually doesn’t end well, just ask MMM people. Choosing the right investment for the length of time you wish to stay invested will ensure your wealth stay protected today and grows over time.
Intelligent investing starts with capital protection and transcends to modest capital appreciation which over a prolonged period of time builds wealth.
Investing is not about making 100{0e8f7bd8c71c3fa1e819cfb1aa70ecae2274073187993a957764108fb0a6b833} return every Tuesday. If started at N1,000,000 and you compounded a return of 20{0e8f7bd8c71c3fa1e819cfb1aa70ecae2274073187993a957764108fb0a6b833} per annum over a 30 year period, you will have N237m in the 30th year. That’s a lot of money for doing nothing for 30 years but compound if you ask me. The great Warren Buffet has earned an average return of around 20{0e8f7bd8c71c3fa1e819cfb1aa70ecae2274073187993a957764108fb0a6b833} in the last 50 years, that’s why he is so successful.
The Nigerian stock market has averaged 19{0e8f7bd8c71c3fa1e819cfb1aa70ecae2274073187993a957764108fb0a6b833} return between 1985 and 2018. This includes the periods of high political uncertainty, 2 economic recessions, 3 oil price crash, more than 25 currency devaluations and 2 stock market crashes.
Don’t get sucked into the stupid rhetoric that the stock market is a dangerous place. It’s only dangerous to people who don’t know what they are doing. If you stay invested for the long term, more often than not, you will end up being the smartest investor in the room.
Investing is sticking to your principles and staying for the long term. Never forget your discipline because of small market gyrations.
