Last Updated on June 9, 2024 by Arurhose
My focus today is not just how to keep money but how to get started with investing it. You must be disciplined not only with saving money but also with real wealth building in investing it. So, we are talking about Mutual Funds today. What exactly is it? How can you start investing in mutual funds in Nigeria? Yes.. Yes.. I know you unbelievers who can’t imagine you can do that from Nigeria. Yes, you can, and you can definitely buy stocks both Nigerian stocks and US-based stocks.
Before we proceed, this is a gentle reminder there are several ways to build wealth. YouonFI blog speaks to multiple ways of achieving this, from finding remote work to offering professional contracting services. Be sure to read more articles like this.
So What’s A Mutual Fund?
Imagine you and your friends want to buy the latest game console, a LEGO set, or a landed property for the older folk. You pull all your resources together and make that purchase. You have a share of this purchase. Think of Mutual funds as having the purchasing power and access to benefit from financial instruments you wouldn’t have if on your own. When you put your money into a mutual fund, it joins everyone else’s money, and together, you are all on a piece of that big set of stocks or bonds. Like with LEGO, you don’t own specific pieces but own a share of the whole set.
Imagine you and your friends love collecting vintage watches. But instead of just one type of vintage watch, you want a collection of different watches! So, you decide to pool your money together. Each friend contributes some cash, and together, you have a huge collection of vintage watches. In this collection, you have different watches from different time periods, watches worn by celebrities, etc. That’s what a mutual fund is—a financial portfolio where many people put their money together to buy different types of investments.
Here’s the best part: You don’t have to decide which investments to buy. A special person called a fund manager does that for you. They’re like “vintage watch experts.” They pick a mix of investments based on rules everyone agreed upon. Some investments might go up in value, while others might not do so well. But by having many different types, the chances of success are higher!
Three Mutual Funds Trading Tips
CowryWise is highly recommended when considering investing in Mutual Funds. There are a number of factors to consider when investing in Mutual Funds. You are thinking about how long you want to invest (Short term or long-term). What’s your risk level? Are you a risk taker or very averse to risk? With CowryWise, you can take a risk assessment test to determine what kind of investor you are. Based on your investment, different classes of mutual funds will be presented to you.
1. Invest According to Your Financial Goal
You want to choose a mutual fund based on your financial goal. For example, you might choose hobbies or activities based on what interests you, and selecting mutual funds can involve picking investments that align with your financial goals and interests. For example, suppose you’re passionate about technology and believe it’s the future. In that case, you might choose a mutual fund focusing on technology companies. Similarly, you’re interested in sustainability and environmental issues. In that case, you might opt for a fund that invests in green energy or eco-friendly companies.
By aligning your investments with your interests and beliefs, you can feel more connected to your financial decisions and potentially see better long-term results. For example, you can consider growth-oriented funds if you are young (like me) and want to grow your money over time. Growth-oriented funds typically invest in stocks of companies with strong potential for expansion and innovation. While these funds can be more volatile in the short term, they have historically provided higher returns over more extended periods, making them suitable for teenagers with a longer time horizon before needing their investment funds.
As you grow older, you might want something steady like a bond fund or balanced funds (funds with maturities over a year e.g. 3-year FGN Bond). It’s steady and safe, and it comes with low risk. Bond funds invest in bonds issued by governments or corporations, which pay interest regularly, providing a steady income stream. Balanced funds combine stocks and bonds to balance growth and income, offering stability while still allowing for potential growth.
2. Evaluate Critically
Just as you wouldn’t judge a book by its cover alone, you shouldn’t judge a mutual fund solely by its star rating. While ratings offer a glimpse into a fund’s past performance, delving deeper into other aspects is crucial. Consider the fund’s investment objectives, its assets, and its overall strategy. By doing so, you’ll better understand whether the fund fits your investment objectives and risk tolerance.
When considering a mutual fund, check out its investments. Are they similar to what you already have in your portfolio? If they are, the fund might not offer the diversification you’re looking for. Be sure the fund works well with your current investments and helps spread your risk among various asset classes.
Just like how you might enjoy watching different players use unique strategies in a game, mutual fund managers also have their investment approaches. Some managers choose exciting investments with the potential for high growth, while others prefer to stick with well-established companies. Before diving into a fund, knowing the manager’s strategy and seeing if it aligns with your investment goals is essential. Do they take risks that you’re comfortable with? Are they investing in areas that you believe in for the long run? By picking a fund managed by someone whose strategy you understand and trust, you can feel more at ease with your investment choices.
3. Start Systematic Investment Plans (SIPs):
Similar to how you might set aside a small amount of your pocket money each week for something you want, starting a Systematic Investment Plan (SIP) involves saving a portion of your income regularly to invest in mutual funds or other opportunities. With a SIP, you can choose how much money you want to invest at specific intervals, like each month or quarter. This steady and disciplined way of investing can help you grow your wealth over time by steadily adding to your investment portfolio.
Like your bank helps you save automatically, SIPs allow you to invest automatically. You set up instructions, and your bank or mutual fund provider regularly deducts the chosen amount from your account.
When you invest through SIPs, you automatically buy more units of your chosen investment when prices are low and fewer units when prices are high. This strategy is called “rupee cost averaging” in investment terms. Buying more units when prices are low reduces the average cost of your investments over time, potentially increasing your overall returns.
By setting up SIPs, you’re saving and investing regularly and taking advantage of compounding and rupee cost averaging to potentially boost your wealth in the long run. It’s a straightforward yet powerful way to establish a solid financial future.
Investing in mutual funds helps you have access to buy a mix of stocks, bonds or other assets, offering you a great way to invest long-term.