Investment: Road to Financial Freedom

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Thanks to everyone who joined in the Personal Finance e-Conference. The feedback was very good and I also gained from the sessions handled by others.

Today, I'm taking the lazy man route. I have a long day ahead, making preparations for our Abuja training starting tomorrow. So I will be sharing verbatim my speech for the conference. Enjoy!

Investment: Road to Financial Freedom

Investment is all about making your resources work for you just as hard as you worked for them. It is how you create your roadmap to financial freedom.

We all have pictures in our heads of the type of comfortable and financially sound lives we want to live. For some of us it is to own a very beautiful spacious house in Lekki, have enough fund to send our children to the best schools, own several passive sources of income and be able to afford everything we need. For some it is to be the next Dangote, to be extremely rich. Regardless of what that picture is for you, I am sure it requires more money than you currently have. And that is where investment comes in.

Investment is how you go from where you are financially to where you want to be financially. It is beyond just putting aside a portion of your income. It is way more than that. Investment is into three broad categories that you must delicately balance together:
1.       Self-investment to grow your earning power,
2.       Financial investments to grow your money, and
3.       Happy-ness investment.

1. Self Investment
The biggest resource you have is you. You will make more from your career than you will from any investment. So you first have to invest in yourself. Grow your career, improve your marketability and increase your earning power.

The easiest way to achieve this is to never stop growing and learning. Constantly update your professional skills, acquire more professional experience and make yourself valuable wherever you are. The biggest opportunities you will come across in life are while you are busy at work. Luckily, we have a recent story of Olajumoke. And if you look back at your life, I am sure you will notice a similar unexpected opportunity come up while you were busy at a task you didn’t think too highly of. If you read the biographies of the people we consider great and influential, they all had those points in their lives that everything changed while they were busy at a work.

So your number 1 priority should be to grow yourself. Invest in yourself.

2. Financial Investment
This is the part where you make your money work for you just as hard you did for it. It is about being strategic with your finances. From the personal finance session, you’ve learned how to manage your income and expenses. Now, you will be taking it further. You will be strategically growing your income. It involves setting aside some portion of your income in an investment account so that over time it grows and becomes a source of passive/extra income.

The investment options you have are:
a.       Savings. You can put some of your money in a dedicated savings account to prevent you from spending it and at the same time earn some income on it. Savings are best for keeping money you might suddenly need or probably draw on in less than a year’s time. A good example is your emergency fund account. Personal Finance experts advice that you have an emergency fund that will hold about 3 to 6 months living expenses for you. The reason is to help you cushion unplanned expenses or job loss. A savings account is the best place to put such a fund. You want easy access to it as it is meant to cater for emergencies (which unfortunately, happens in life).

b.       Fixed Deposit Account. If you have a lot of money (millions to be specific), then you can fix deposit them with a bank in exchange for a higher interest rate than the usual savings account will give you. The catch with fixed deposit is that you need a very high amount (last time I checked with GTBank, I was told it was N15 million and above) and withdrawing is not as easy as with a savings account. That is the sacrifice you make for the higher interest rate.

c.       Government Bonds and Treasury Bills. You can also invest in the Federal Government Treasury bills and bonds. They give interest rates that are higher than savings account and usually higher than fixed deposit too. The catch is that there is a minimum investment amount, specific times to buy in and you have to wait till the bond matures before you get back your money.

d.       Mutual Funds. You can also invest in a mutual fund. Mutual funds are often run by investment houses that pull funds from many people and invest it on their behalves. In Nigeria the popular ones are the ones by ARM, Stanbic IBTC and First Bank. They enable you to invest in bonds or stocks or real estate without needing millions or having to worry about the management of the investments. The catch is they charge you management fees.

e.       Stock Investment. You can invest directly in the stock market. The risk is high but so is the potential gain. If you have the knowledge and time, then this may be a very good way to grow your investment.

f.        Real Estate. If you have the industry knowledge and sizeable money to start with, then you can play in the real estate investment field. It is very lucrative but requires a lot of work and smart. If you already have a demanding full-time job, it might be a quick way to lose your money to agents and fraudsters.

g.       Private Investment Manager. If you are super rich, then can you have a private investment manager. He’s going to do all the hard work for you and create a balanced investment portfolio mix for you.  You can put him on a monthly/yearly salary or pay him on profit share (commission).

There are other types (commodities, precious metals and hedge funds) which are not available in Nigeria. I will advise that you read more on the investment types that interest you and start building/growing your investment portfolio. A good investment strategy will involve a mix of the investment types. In my case, I have my 4 months living expense (emergency fund) in Diamond Bank’s High Interest Deposit Account; I have a stock mutual fund account; I have a money market mutual fund account; I have stock brokerage account and I have a US index fund account. I regularly shuffle money between them all as investing market conditions change and to keep my portfolio balanced.

3. Happy-ness Investment
One shouldn’t sell his soul for money. Pursuit of happy-ness should be part of your overall investment plan. Choose a career path that makes you happy, not just what can get the most money into your pocket. If you are very religious and against smoking and drinking, then you might feel happier not investing in Breweries and Cigarette companies even if they are the best investment performers.

You should invest in healthy relationships, experiences and thrilling adventures. The people who spend to skydive or climb Mount Everest don’t view it as a meaningless expense. It is one of their most cherished experiences. They value it as much as a physical asset (e.g. car). We all need a mix of such experiences to live a wholesome life.

The whole essence of investing is to achieve financial freedom. The moment you sacrifice happiness that freedom will never sink in. You can have as much wealth as Dangote but if you gave up a happy life for it, you won’t enjoy the financial freedom.

Now, it’s time for questions.

Q & A


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