By Babajide Komolafe

I don’t want to invest in shares, bonds, bank deposits. What can I invest in? This is the question posed by some readers. The last two editions highlighted the reality of risk in every type of investment, and the fact that to invest your money, you either invest the money yourself in a business activity of your own, or you give (lend)  the money to somebody who must use it to generate income, from where he can derive profit and return your money with interest.

The last edition also explained the difference between investing in financial instruments offered by financial institutions (banks etc) and non financial instrument. While there are rules and procedures guiding investment in shares, bonds and bank deposits, it is mostly not so with other typesw of investment.

The above leads to the following questions, “Do I want to invest in something that is regulated or something that is not regulated? Do I want to invest in something that if anything goes wrong, I can seek and get relief from the authorities or something where the possibility of seeking and getting relief is slim? Do I want to invest with people who are mandated to operate by a set of rules or people that are free to operate as they like?

Another reality is that if your desire is to invest in a personal business activity, you have to build up some savings overtime. While you are doing this, it is either you keep the savings under your pillow or you give it to somebody for safe keeping and possible returns. If you choose to invest it by lending it to somebody, the person could deploy the money in business activities or investment that can go bad and the money would be lost. But you can keep the money in a savings account or fixed deposit where you are sure of the safety of the money and also interest income on it. Even if you have the benefit of regular savings in a cooperative group, the group would have to lend the money to other members or deposit the money in bank.

The summary of these scenarios is that while there are alternatives to investing in shares, bonds, bank deposits, these alternatives come with significant risks and stress. There are risks and stress associated with investing your money in a personal business. There are risks and stress  in lending your money to somebody by yourself. As it is true that people have lost money investing in shares, bonds and bank deposits, it is also true that people have lost money investing in non financial and non formal business and investment activities.

The basic difference is that financial instruments and the financial markets were developed over time to allow people invest their money, through intermediaries, that bears the risk and stress for the investor, and the intermediaries are regulated and mandated to play by set of rules.

Thus instead of lending your money to a friend to do a business, you give the money to the bank, which then lends the money to that friend to do the business. Before the bank lends him the money, it makes sure it has taken the entire necessary step to minimise the risk of the borrower not paying back the money. So you are spared the agony of worrying about not losing your money and you are assured of interest on  your money. So which of this do you prefer?