Investment can be defined as an asset purchased with an expectation that it will generate income or appreciate over a period. Investment requires one dedicating capital, time, effort, and energy with the hopes of getting returns. There are various reasons for having an investment portfolio, which includes income generation, future benefits, capital appreciation, and wealth creation. Investments can either be long or short-term depending on the type of investment plan one decides to opt for. However, it is also important to know that there are risks associated with investing. These range from Systematic to Unsystematic risk.
INVESTMENT RISKS YOU SHOULD KNOW ABOUT
Systematic risk is also known as non-diversifiable risk. Such a risk cannot be eliminated by varying the investment opportunities in your portfolio. Examples of such risks include.
- EXCHANGE RATE RISK: This risk is associated when there is a currency fluctuation during investment which can affect the investors return negatively.
- INTEREST RATE RISK: This risk occurs when there is a decline in the value of an asset resulting from an unexpected change in interest rates. For example, a rise in interest rates will affect the value of bonds and have a negative effect on stocks.
This risk is also known as diversifiable risk. Unsystematic risks are unique to a single business, sector, industry, or country. Diversifying your investment can reduce unsystematic risk. Examples of such risks include.
- INVESTMENT MANAGER RISK: This risk is associated with the skill of the investment manager. Losses resulting from mistakes, negligence, and incompetence of the managers of a financial portfolio would fall under investment manager risk.
- INVESTMENT COMPANY RISK: This risk is associated with investing with companies that promise too high/unrealistic interest rate or rewards that appear much higher that the current market rates/returns.
- POLITICAL RISK: This risk occurs when a country is experiencing political instability for instance if there is war going on the country, this can lead to a negative return on investment.
Overall, it is advisable to diversify your investments where possible to reduce your level of unsystematic risk. However, keep in mind that systematic risk is out of your control and dependent upon the economy. When determining your level of investment, you may want to invest your hard-earned money in an appropriate asset allocation based on location, risk tolerance, and time horizon. Doing this may assist in creating a strong financial future.
Here’s a few investment opportunities for Nigerians.
AGRICULTURE: Across the world, agriculture is one of the most profitable sectors one can invest in. Africa has a huge domestic market and has abundant labor resources and a favorable climate, especially in Nigeria.
“The world population will reach 9.1 billion by 2050, and to feed that number of people, global food production will need to grow by 70%, and farm productivity must accelerate at a faster rate to avoid massive hunger.”
- (FAO, The future of food and agriculture: Trends and challenges, 2017, p.46)
In Nigeria, there are opportunities to sponsor farming projects and own a share in return. With an ever-growing population and increasing need for food, technology is being used today to massively increase farm output.
Investment platforms such as AgroVest Farmers and Allied Services, a tech driven solution to Agri-Businesses helps farmers, individuals or corporate bodies invest in agriculture by sponsoring farm units and machineries to earn competitive interest.
Real estate consists of land, building property along with its natural resources such as crops, minerals or water. In instances where land and building prices are rising, real estate is often purchased as an investment. The return on this investment is the price appreciation of the real estate asset’s value. This is another profitable investment opportunity due to the booming population and large migration of people from one city to another. The larger the population, the higher the demand for landed properties.
Fixed deposits are investments predominantly deposited in a bank. Essentially, you invest a specific amount of money for a fixed period at an agreed interest rate. At the end of the agreed period or tenor, the investment can either be rolled over or liquidated (returned to customer) with the interest amount earned. One of the benefits associated with having fixed deposits as an investment option is its low risk.
SHARES / STOCKS:
Shares/stocks provide income in the form of dividend. Many investments pay dividends monthly, quarterly or annually. Investing in stocks means taking part ownership in a company’s shares. Share prices may fall due to mismanagement of the company or downtimes in the company. Wealth on the other hand can be created if the company is performing well.
BENEFITS OF INVESTING
- Taking advantage of credible investment opportunities can help you reach your financial goals.
- Investment helps people to diversify, meaning that one can invest in a range of assets rather than one single asset.
- Investment ensures financial security and stability.
- Gaining financial freedom
- Adequate savings upon reaching the retirement age.
Conclusively, it is worthy to note that the population of Nigeria, which is estimated to be over 200 million people, makes Nigeria a naturally viable ground for investment opportunities. If you are experiencing challenges securing funding for investment, you may consider liaising with other like-minded individuals or your Bank to identify ways to secure funds for investment.