By Babajide Komolafe
The second principle of profitable investment in shares has to do with the kind of money used for the investment. Last week, we said that the first principle is to invest long term. Now, if you are going into long term investment, you need to use long term money, or safe money, that is money that is yours and which you don’t have need of, for a long time.
There are basically two categories of such money. The first is savings. It may be money that you have saved or saving for the future, say when you retire, or towards children education or a future project. For example, you may decide to be saving N5000 every month for the future, which comes to N60, 000 in a year. You may invest N40, 000 in shares and the remaining in any other type of investment.
Now, as you are investing the N40, 000, you make up your mind to invest it for five to ten years. The most important thing is that, barring any personal crises or emergency, you don’t need this money for a long time. Hence you are not under pressure to sell the shares you have bought.
Another type of long term money is loans from groups or institutions like cooperatives, which usually come at low (single digit) interest rate, and with very convenient repayment terms. The repayments of such loans are deducted from salary or a regular recognised source of income, and are spread over 12 to 24 months period.
Also such organisations ensure that what you borrow is not too much such that the repayment leaves you with nothing for regular living expenses. This kind of money is also like savings, but savings in advance. In other words, instead of waiting for 24 months to save N200, 000, you borrow it from the cooperative, say at 9%, and repay over 24 months.
Now whether it is savings, or money borrowed from cooperative and similar organisations, the essential principle is that the money is yours, you don’t need it for a long time, and or you are not under pressure to repay immediately or the repayment is very flexible and generous.
Consequently, you can invest such money and not bother much as to whether the stock market is going up or down today or tomorrow. You have invested safe money for the long term, and you know in the long term, the price of the shares will rise, and you will also earn dividend. So, you are not under pressure or apprehensive of what the market is doing today.