Over the past few months, we have been talking about money and savings. Yet these are not all there is to being smart about one’s finances, there’s also investing.
While it is true that as a young person you may not have much money at your disposal, but the fact which we, like other financial experts like to emphasise is that you are never too young to start learning the ropes. Warren Buffett, the second richest man in the world, started learning about money and investment from his father as a boy.
In this vein, let’s dig in as we learn what the rudiments of investing are.
1. Learn How To Compound Money
As discussed in a previous article, compounding money is a fine way to have your money working for you! The principle of earning compound interest on your money is simply that you earn interest on interest, and it’s how so many people began to grow their wealth.
And do you want to know a trick? The more your initial investment – also known as principal, the higher the compound interest rate, and the frequency of returns, the better! Keep this in mind.
2. Choose Your Investments
There are different types of investments out there, some riskier than others. Bonds, for example, are safer than stocks, but they also produce lower returns. You should understand though that there’s risk involved in investing, and that with greater risk comes higher reward.
If you are interested in buying shares, don’t just buy blindly! Pick shares from companies you are most interested in, and which you know a lot about. That’s how the best investors do it. Pick stocks that actually mean something to you.
3. Be Prepared To Lose Money
You must realise that investing sometimes involves losing money, it’s not win-win all the time. But you should also know that in the stock market, you don’t actually lose any money until you sell off your investments at a loss.
For example, if you buy 10 shares of a given company at ₦20 per share, and after a month, the value of those shares drops to ₦15 per share. It may look like you have lost money, but in reality, you don’t lose any money until you sell those shares at that lower price.
The lesson here is that investing, especially in stocks, often means been in it for the long run. And while patience is a virtue, you must also be strategic so that when a good chance comes your way, you can make the best of it and come away as a winner.
If you are serious about setting yourself on a solid financial path, your best bet is to start learning about investing as early as you possibly can. And when you eventually become an adult with more responsibilities, you will continue to apply these teachings in your financial life and much to your own good.
This post was adapted from fool.com