Responsible Investing: A beginner's guide.

Investments are a good way of creating wealth and attaining financial freedom, but if you do not possess the relevant information needed to make informed investment decisions then you may be on a path to financial problems.

A self-evaluation should be carried out prior to investing. What are your objectives or goals? How long are you willing to invest? Long-term or short-term? How much risk are you willing and able to take on? These questions assess your risk profile and suggest suitable investment solutions in line with your objectives. An added advantage is being knowledgeable about investments.

As you know, knowledge is power, therefore, you should familiarize yourself with the factors that affect investments and their implications. Some of them include:

• Inflation Rate: Inflation rate measures the increase in the general price level of goods and services over a period in an economy. It is important you are aware of the current and historic inflation rates at the time you want to make investment decisions. This is because inflation leads to a decrease in the value of money, meaning it will take more money to buy goods and services (the purchasing power of consumers decrease). A good investment should therefore have a return rate higher than the inflation rate. An investment like real estate is positively impacted by inflation as its value increases as inflation rises.
• Volatility of investment market: This refers to the degree in which an investment’s market price fluctuates. A market is highly volatile when it goes through frequent fluctuations. This means the market or economy is not stable. These fluctuations are a result of economic conditions, political factors, geographical factors, interest rates, etc. Market volatility is usually associated with investment risks and has an impact on the returns the investment will yield. A highly volatile investment is riskier but has higher expected returns. From this, it is seen that you need to research and consider the fluctuations in the local and global economic trends before making investment decisions.
• Liquidity: Liquidity is the ease with which an asset can be converted to cash with little or no loss in value. It is important to know that your funds are easily accessible when the need arises. If you want to invest your funds for a short period of time, then it’s best to invest them in more liquid assets like treasury bills, commercial papers, etc.

Before you start investing, do a self-evaluation to know what type of investor you are. Click here to learn about your risk assessment profile.