We still have a long way to go in the our African communities in understanding investments. Either we just do not understand or we just do not care and are sometimes prepared to loose it all.
You hear things like, “I invested all my savings in MLC24/7 and lost it all”. My sister, you did not invest, you were speculating or rather in a more simple term, you were gambling with your money.
So what is investing and why does it differ from speculating and gambling? Why should you care about the difference if you want to attain financial freedom?
Investment is affected by three main variables mainly; the amount you are putting in, the return that you can generate on your capital as well as the duration of time you are prepared to leave your money in before pulling it out. Investing is generally backed up by a solid underlying business and its best undertaken with a medium to long term horizon. An investor takes an educated risks and tries to diversify to ensure that should things go wrong, they are not loosing it all at once.
Compare that to speculating. Speculators believes in the power of luck and are more attracted to making rich money quickly. This sort of schemes promises highly returns in a short period of time and generally, to attract people, they tend to deliver on their promises to the early bloomers. These early bloomers are then incentivized to get others on board in return for a commission. Because there is not generally enough people to sustain the business especially in small countries, they tend to die rather quickly.
So what to watch out for to avoid loosing money?
- If it’s promises 50% return within a short period of time, its probably to good to be true. Considering that the interest rates are averaging 10.25% – 12%.
- If they do not seem to have a clear business model behind it. What is it that they do? Do they sell products or do they render services? If they have products , at least there is something tangible.
- The moment that they require you to ask other people to join , its probably a pyramid scheme. These business tends to thrives for as long as the idea is new. Once its has settled in and there are no new joiners, the whole thing start to collapse.
So instead of throwing away your money in something that you do not understand, why don’t you put in a bank account whilst you are understanding how that potentially investment works?
You must calculate what your risk appetite is and anything beyond that should be a no go area for you.
I have warned you.