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Nigerians are easily drawn to the promises of high returns on investments and passive incomes. So, most of them look into investments in shares, drawn only by the promise of high returns. While seeking out a good return for your money isn’t bad in itself, there are some critical questions you need to ask yourself to ensure you’re making the right choices. This post presents you with a list of ten questions you can ask yourself to help you evaluate your readiness and the suitability of shares for your investment portfolio. By considering these ten questions, you can better understand your financial situation, risk tolerance, and investment goals. This will ultimately help you make smarter, more informed decisions about your investments in shares.
How Much Do I Know About the Stock Market and Investments?
The first question to ask yourself depends on your knowledge of the stock market and investments. Having a solid understanding of how the stock market works is important as it will go a long way in determining your success or failure in the stock market. Start by educating yourself about market trends, how shares are traded, and the factors that influence share prices. You don’t need to study to be an expert, but a basic understanding will help you make more informed decisions about your investments in shares.What is My Investment Goal?
When you have gained a substantial knowledge of the stock market, the next thing to do is to define your investment goals. Are you looking to save for retirement, build wealth, or generate extra income? Understanding your goals will help you determine the best investment strategy. For instance, if you aim to save for retirement, you might consider long-term investments in shares that have the potential for significant growth over time.What is My Risk Tolerance?
Your risk tolerance refers to how much risk you’re willing to take. Investing in shares involves risk, so you need to assess your risk tolerance. Shares and the stock market in general can be volatile, and their prices can fluctuate widely. If you’re not open to risks, you might want to consider other safer investment options.Sign up for the Connect Nigeria daily newsletter
Am I Financially Prepared to Invest?
Recently, a friend shared how he had invested his house rent in the MTN Nigeria shares when they first went public. His calculation was to make little profit off the shares within his first year and sell off his shares. However, not only did the shares trade lower than he bought, he still hasn’t found a way to dispose of his shares till today. So, before investing, ensure you have a solid financial foundation. Determine how much money you can invest without impacting your daily expenses or emergency funds. Investing in shares should not jeopardize your finances. Only invest money you can afford to lose, as share prices are unpredictable.Have I Done My Research on Potential Investments?
Before investing in a company’s share, conduct thorough research into the company you’re considering. Consider their financial health, management team, business model, and market position. Look at their Annual Reports in the years leading to the year you want to buy their shares. Also, consider reports of financial analysts on the company. These can provide valuable insights into whether a company’s shares are a good investment. In addition, you need to consider the performance of the industry in which the company operates, as this can significantly impact its share price.What is My Investment Horizon?
Your investment horizon refers to the length of time you plan to hold your investments. Defining this early on is important. If you need quick returns, or you’re looking at short-term investments, then investments in shares might not be suitable for you. This is due to their volatility. However, if you have a long-term perspective, you can ride out market fluctuations and benefit from potential long-term growth.Am I Diversifying My Investments?
Diversification involves spreading your investments across different asset classes to reduce risk. It is not advisable to put all your money into shares. Consider other investment options like bonds, real estate, or mutual funds. This can help protect your investments from market volatility and potential losses.How Will I Monitor My Investments?
A number of our fathers invested in the stock market in the 90s but lost their investments due to their inability to keep track of them. Regularly monitoring your investments is important. Keep track of market trends, company performance, and economic indicators. This doesn’t mean you should react to every market movement, but staying informed will help you make timely decisions about your investments in shares.Am I Ready to Handle Market Volatility?
Share prices can be highly volatile. You need to be mentally prepared to handle market ups and downs without making impulsive decisions. Emotional reactions to market volatility can lead to poor investment choices. Have a clear strategy and stick to it, even during market turbulence.Have I Consulted a Financial Advisor?
Finally, nothing in this post replaces the place of an experienced financial advisor. So, you must consult with an experienced financial advisor. Especially if you’re new to investing or uncertain about your decisions. A professional can provide personalized advice based on your financial situation and goals, helping you make more informed investment choices.Register to attend the CN Business Mixer
Concluding Thoughts
Investing in shares can be a rewarding endeavour if done correctly. By asking yourself these ten questions, you can better prepare for the challenges and opportunities that come with investing in shares.Got a suggestion? Contact us: editor@connectnigeria.com
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