AM I READY TO INVEST?

As Charlie Munger says, “the first rule of compounding: never interrupt it unnecessarily.”

But I doubt if we truly understand this because just like you, I am a victim of wanting to harvest my produce before it is due; Else, how would I have bought shares and sold it within 6 months? 

This scenario is what happens when we invest money meant for daily upkeep and with little financial knowledge as we embark on the journey to financial independence.

Now I realize how absurd it was of me to have expected my investment to appreciate within that short period. At that point I was yet to properly distinguish between saving and investing and when both are appropriate.

My guess is you are probably still trying to understand the distinction between investment and savings which is why I would be starting with a brief explanation of both concepts while keeping my fingers crossed that we would be better off by the time we are done reading this article.

Saving means having cash or liquid assets that can easily be converted to cash kept aside to meet immediate demands. It is typically for smaller short-term goals for the near future such as saving for rent or buying a gadget. It involves little to low risk at all thereby resulting in low returns from keeping money in a savings account.

Investment on the other hand is usually held to meet long-term goals such as planning for retirement or for paying for a child’s education. Investing always involves risk but typically has the potential to generate a higher return than savings. 

Saving money is important, but it's only a part of the bigger picture and smart savers know they need to start by building sufficient emergency savings within a saving account or with mutual funds for a period of time; after which, investing in medium/high-risk asset such as the stock market comes next with bigger potential advantage.

Whilst saving is putting money aside, investing is putting money to work!        

We also can’t deny the safety savings provide. The confidence savings provide is amazing as it is one crucial way to ease money-related anxiety.

I personally have survived demanding periods, not necessarily by spending from my savings, but by knowing that in the worst-case scenario, I have an urgent 10k in my Piggyvest wallet that I could fall back on.  

Investing is long-term; The stock market is long-term! Do not put the money you will be needing in the next few years into stocks. 

You ought to even understand and weigh your risk appetite rather than following the bandwagon by investing in the stock market. Advisably, you should consult a financial advisor or a close friend who is knowledgeable in this area before investing.

You should understand that if you haven't mastered the art of savings, you have no business with investing yet. Saving is meant to help you jumpstart your investment journey at the appropriate time.

When we invest, it means putting money (in income-generating assets) to work for a period of time or the use of the funds to undertake a project that will generate future returns.

The type of return generated is not only dependent on the type of asset/project the money is injected into but also on accompanying risk and duration 

The best part is- Duration is what makes the magic happens. Investments with long duration tend to yield higher than expected returns. I wouldn't want to assume you understand fully the power of compounding so I will take this opportunity to explain it:

‘Compounding is the act of reinvesting an asset's earnings, whether through capital gains or interest, to create further earnings over time. This exponential growth happens because the investment generates returns from both its initial principal and the cumulative earnings from previous periods’ - Investopedia

Simply put, Compounding occurs when you generate returns on both your principal (the initial amount invested) as well as the interest on the principal gained in the initial period. Compounding can supercharge investment potential and is more pronounced on investments with a long duration which is why it is important to not interrupt your investment unnecessarily.

Oh! How much my Tesla shares would have appreciated by now if only I knew better. 

But to achieve this, it's encouraged to start first by building your savings so you don't get find yourself in a situation that would warrant you putting a halt on your investment. 

It is totally possible to improve your saving habit. You can be more accountable by joining a personal finance challenge where you get to meet like-minds who will serve as accountability partners. I would recommend you take part in the Smart Stewards challenge by Sola Adesakin CPA, FCA, FCCA, MBA, CFEI which is still ongoing. 

Lastly, what you need is a daily dose of financial tips. You can obtain this by following relevant pages on personal finance. My favorites include Smart Stewards and Money Africa .