"I have some money in my account. What can I invest in?". I've gotten this question a number of times. In response, I used to ask, what's your investment objective? The next thing is a blank expression. That's the reason why I want to talk a little bit about investment objective. I've discussed with a lot of people who have taken up investment products and every single time I ask them the question of why have you chosen this specific product, many people can't give me an answer. When investing, it is ideal to have a reason why we are putting our money away for future use. Now the question you need to ask yourself is; with this specific investment, what am I trying to achieve.
First of all, let me use the analogy of traveling to illustrate the concept of investment objective. When you want to travel, let's say for instance you want to move from Owerri to Lagos, there is a reason for the type of vehicle you choose to convey you to your destination. You may choose a space bus because of it's fast. Or you choose a luxury bus because you want comfort and relative safety. To some people, getting to their destination quickly is paramount, whereas to others, comfort and safety is sacrosanct. These are travelling objectives. The same thing applies to investing. When you are choosing investment vehicle, irrespective of the the asset class you want, it is necessary to understand what your own investment objective is. Remember that your investment objective is peculiar to you. Your investment objective and mine need not be the same. This is why you and I may not go for the same financial investment products. Specific financial products speak to specific investment objectives.
Now let's see the various investment objectives
Capital preservation. Basically, when you're talking about capital preservation you're looking at preserving the value of the money you want to put away. For instance, if you want to buy a car, maybe Toyota corolla whose retail price is 1.2 million naira. But you don't have the lump sum of money. You might choose to postpone the purchase till the end of the year in order to save enough money. However, there's this thing called inflation, which might push up the price of the car by the end of the year. In order not to allow inflation prevent you from buying the car by year end, you may start putting your savings into an investment vehicle that can beat inflation and preserve the value of your money. That is what capital preservation looks like.
Another investment objective is capital growth. When you're doing capital growth, you essentially want your money to double or triple (as the case may be) over some period of time. So, in this situation, you want your money to actually grow far above inflation. Generally, capital growth happens due to compound interest.
Another investment objective to consider is asset appreciation. Here, we're looking at a situation where properties appreciate in their retail value. For instance, if you bought a piece of land and in the next few years, the market value of that same piece of land is worth far higher than the purchase value. Note that not all properties appreciate in value.
Last but not the least is income generation. If you're the type that cannot wait for your investment to accumulate value over time, that is you want your returns immediately, income generation is your investment objective. A good example is through rental income. Rental income can be realized from leasing pieces of land, residential apartments, office space, shopping complex. Others can be vehicles, machines, party equipments etc.
It is important to have all these option at heart in order not to be in a situation where you will be asking " I have some money in my account, what do I invest in? Even if you've not started earning an income, probably you're still a student, this piece of information is for you. It's important to develop your financial aptitude now so that when you eventually start earning, your investment objective will be very clear to you.
Note that this article is not an investment advice. If you need one, please consult a financial advisor registered with the SEC.
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