By Babajide Komolafe

In the last edition, we published some of the responses of readers to the series on “You Can Invest”.  Among other things, these responses reflect that Nigerians are interested in investment, and they are willing to learn, or acquire the necessary knowledge. Some of the responses were from young people, below 25 years, which is good for the future of the country.

One salient revelation from the responses is that if the operators and regulators in the economy devote more time and resources to enlightening and educating the populace about investment, more and more people will imbibe investment as a habit, leading to increased participation of local investors in the nation’s financial market.

Some readers are scared of investment in financial instruments like shares, bonds, mutual funds etc. They want to know if there are alternatives to these investment options. Now some of them just believe (erroneously) that shares, bonds and other financial instruments are frauds, or full of risks, hence they want to avoid such investment.

The first response to these readers is, yes there are alternative investment channels beyond these financial instruments. But they are also full of risks. Every human activity or anything on this earth has an element of risk. Risk is basically the possibility that something unexpected, costly and harmful will happen. In the primitive, agrarian society, where subsistence farming was the most readily available investment, the expectation of harvest, or returns, is based on good weather, adequate rainfall and sunshine. Now these are factors not within the control of the farmer (investor).

There is always the risk of inadequate rainfall (drought) and hence poor harvest. In every type of investment or business activities, there are many factors that are beyond the control of those involved, hence they are unpredictable and uncertain. In addition to these factors is the fact that human beings are prone to making mistakes, some genuine, some stupid.

To succeed as an investor, you must accept this reality, and stop searching for risk free investments.  Also, you must accept the correlation between risk and return (profit) on investment, which is, the higher the profit, the higher the risk. Furthermore, learn the two basic ways of handling risks.

The first is to identify sources of risks, and put in place measures to reduce their occurrence. For example, using cheque to pay for an investment instead of cash reduces the possibility of theft by the agent. The second is to identify sources of risks and prepare to reduce the impact of their occurrence. For example, there is always the possibility of having a flat tyre when you drive. But having a spare tyre can reduce the impact (e.g. time loss) of that occurrence.   In summary, rather than seeking for risk-less investment, always ask, what are the risks in this investment?