Let’s face it, you can’t really achieve financial freedom if you don’t invest.
You can be lucky and win a life-changing jackpot or a family member can bequeath you with unimaginable wealth that immediately gives you financial freedom.
Aside from these, you must actively invest your income if you must achieve financial freedom.
And even if you get lucky and win a jackpot or some money get bequeathed to you, you still have to invest it, otherwise, you will lose everything.
You see, there’s no way you can run away from the topic of investing. You simply have to do it if you want to be wealthy. You simply have to keep doing it if you want to remain wealthy.
So what is that one rule you must keep when you invest? What is that golden rule of investing?
Here is it.
Do not lose your capital.
I’m not saying that there are no other important rules of investing out there. But to me, this is the most important one. After all, you need money itself to invest. All those other rules have to come in when you still have your capital.
This rule is so important because it is the whole essence of investing. You invest to grow your capital. You invest to grow your money and not to lose it or decrease it.
You invest to be wealthier and not poorer after a period of investment.
So how do you achieve this?
What is the sure way of ensuring that you don’t lose your money?
Here is it.
Invest in what you understand.
There are lots of things people do with their money which they call investment which actually is pure gambling.
A friend will propose an idea to you, an idea you know absolutely nothing about but because it’s a friend and there’s a promise of fifty per cent return within a year, you give the friend your money.
When I say invest in what you understand, I don’t mean you must understand the whole make up of the industry or company you are investing in. But at least you must understand how they make money and how they are going to make the returns they are promising you.
For instance, If I have the opportunity to invest in railways today, I will jump at the opportunity. Not because I understand trains and rail tracks, in fact, I know nothing about them, but because I see an enormous opportunity in it.
Nigeria is crying for railways. We need to connect the cities, we need to connect small towns, we need to relieve the roads of the immense burden of transporting everything for us. The opportunities are endless.
I will invest because I know that once the trains are up and running, people will travel on it, goods will travel on it and in no time, my investment will grow. I understand the opportunity for big cashflow and I will want to tap into it.
I know how they are going to make my money back.
I can say the same thing about the finance services industry. Everything finance in Nigeria is under: underbanked, underinsured, under mortgaged, under everything.
Millions of people don’t have bank accounts, millions of people don’t have even health insurance, millions of people don’t own a house and no one will give them mortgage to own one, we still finance our cars hundred per cent.
So when I want to invest in this sector, I know that there are infinite possibilities for cashflows. I know that despite the risks I can still have a return on my investment.
The point is understanding how you are going to make your money back.
You might not understand all the intricacies of the business, but you must understand how they make money.
Ok, I may be blinded with the stock market and seemed to be talking about companies. But there are other forms of investing and the same rule apply.
Opening a shop is an investment, buying and selling from one city to the other is an investment, farming is an investment, buying a taxi is an investment, a bus is an investment.
The underlying question is: do you understand how you are going to make your money back? If you do, then go ahead with your investment.
Don’t allow anyone to tell you that there’s this investment opportunity that returns a hundred per cent a month and that you only need to put in your money and wait for a month to reap the reward.
Every investment is a business, there must be a way of making money, not just putting in money and getting back times two of the money.
If you don’t understand how advertisers make money, don’t invest in advertising agencies. If you don’t understand how Google make money, don’t invest in Google. If you don’t understand how accounting firms make money, don’t invest in them.
Invest in the things you know, in the everyday things you see. You have better opportunities making money from them than in the things you don’t understand.
Again, here’s the golden rule of investing: invest in what you understand.
Know how you can make your money.
Ask important questions.
Is there a market for there products or services?
Will there still be a market for their products in the next five to ten years?
When you consistently do this before you invest, when you consistently keep the golden rule of investing, you will get a lot out of your investments.