Smart Investing: What You Need to Know

When you think of investing, what comes to mind? Perhaps images of rich people in a boardroom or clips of Leonardo DiCaprio from the movie “Wolf of Wall Street.” Many believe investing has little to do with them since only the privileged few can do it. But this couldn’t be further from the truth.

You probably have a general idea of “smart investing” and how it can be a valuable part of your financial plan. The problem for most people is that they don’t know exactly how to get started. They also don’t know enough to understand its potential benefits vs. risks. Smart investing is about thinking beyond your day-to-day cash needs and looking at the broad landscape of your financial future. If you are in your 20s or 30s, now is the perfect time to start investing for the long term. This will help you build a solid foundation for retirement and other financial goals. The earlier you start saving money, the more time your investments have to grow.

If you want to know all you need to about smart investing and whether it could help your specific financial situation, keep reading. This article covers everything from the basics of smart investing to some innovative ways to invest and get started on building wealth.

What is Smart investing?

Smart investing is selecting an investment based on its potential for growth or the potential for an investment to increase in value. In other words, it is all about finding the right stocks and funds to grow your money over time.

An investor may consider many factors when deciding whether to make an intelligent investment. These factors include:

• The risk of the investment. The higher the risk, the higher the potential return.
• The amount of money invested. For example, you can expect a greater return if you invest 1 million than 100,000 Naira.
• The type of security you buy (e.g., stocks, bonds, mutual funds).
• The time frame you will hold your investment (e.g., one year or five years).

What are some smart ways to invest money?

There are many ways to invest money; some are smarter than others. Here are some of the good ones.

Have an emergency fund

Before investing, you need to ensure that you have a safety net. Have an emergency fund to cover three to six months of living expenses if you lose your job or face another unexpected expense. 

You never know what life will throw your way, so it is best to be prepared. This will help you avoid taking out a high-interest loan or putting unnecessary pressure on your long-term savings.

Diversify your portfolio

The reality is that no one can predict the future with 100% certainty. But you can prepare for various possible outcomes by diversifying your portfolio. Diversification means you spread the risk of your portfolio across different sectors, asset types (such as stocks, bonds, and commodities), and countries. This will help you avoid putting all your eggs in one basket. 

It is also a good idea to keep your investment strategy dynamic. If you are investing in one sector, such as technology stocks, ensure you are prepared for that sector to fall and rise so your portfolio isn’t too heavily weighted in one industry.

Know your risk tolerance

Your investment risk tolerance should reflect your emotional and psychological attitude toward risk. You should know how much risk you are willing to take on and be prepared to accept losses. This is important, as a sudden drop in the value of your investments is possible and expected. It would help if you were prepared to stomach the ups and downs of the market, and you should be willing to accept some losses. 

If you invest in long-term goals like retirement, you will have plenty of time to compensate for losses. Suppose you are investing for shorter-term goals, such as setting money aside for a down payment on a house. In that case, it may be a good idea to take a more conservative approach and avoid more volatile assets like stocks.

Simplify Your Investing

It is essential to keep your investment simple. Start by investing in a mix of stocks and bonds. Also, diversify your investments across different types of assets, such as stocks and real estate. You should align your portfolio with your risk tolerance and financial goals. 

Suppose you are saving for a child’s university fund, for example. In that case, you may want to invest solely in low-risk investments, such as government bonds or certificates of deposit (CDs). Likewise, if you are saving for retirement, you want to focus on higher-risk, long-term investments, like stocks.

Invest in blue-chip companies

Blue-chip companies are large, established companies with a history of paying consistent dividends. Investing in blue-chip stocks is another smart way to invest. Blue-chip stocks are companies that have been around for decades, generate consistent income, and are unlikely to go out of business. You can get exposure to blue-chip companies through mutual funds or exchange-traded funds (ETFs). Blue-chip companies are unlikely to experience sudden ups and downs like early-stage companies are prone to do.

Don’t forget ETFs and mutual funds.

For a good reason, exchange-traded funds (ETFs) and mutual funds are among the most popular ways to invest. ETFs and mutual funds are low-cost ways to diversify your investment portfolio. They also let you easily set up a regular investment plan, which is vital to help you save money throughout the year. Mutual funds and ETFs expose you to many different assets, such as stocks, bonds, commodities, and real estate.

Bottom line

Many different types of investing can help you achieve your goals. It is important to keep your investing simple and start by investing in a mix of stocks and bonds. Don’t forget to invest in blue-chip companies, too, as they are less volatile and have a history of consistent dividend payments.

If you have any questions, don’t hesitate to contact our expert financial advisors or visit any of our branches nationwide.