Picture this — a group of old men in suits closing deals and sharing trading information behind closed doors.
In the past, this is the image that many people had whenever there was talk of investing. Investing was not something anyone could do; it was for the select few who knew how the financial markets worked. Africans, in particular, failed to invest because of their economic vulnerability.
Now, things have changed. Anyone can invest, including African youth. This is great news considering that most of them would like to start investing and creating wealth, according to a survey by GeoPoll.
Starting the investment journey is no easy task, though. Low income as well as the lack of money and investment knowledge are among the top challenges cited by the youth. So how do you empower yourself to start putting your money to work and potentially build your wealth? That’s the question we’ll answer in this piece. Let’s get into it.
5 ways for young African people to start investing
Time is a powerful investment tool. The sooner you figure out how to set aside some money for investing, the sooner you can start increasing your financial security and building wealth.
For example, someone who invested $100 in Apple’s stocks at the start of 2002 would have grown their investment by more than 130 times towards the end of 2019.
The following are five steps you can take to put yourself in a position to start investing now.
- Audit your finances
Before you can start investing you need to evaluate your current financial situation (where you stand) and what you want to get out of investing (where you want to go). You need to determine how these two elements tie in together.
The audit journey has three parts:
- Identify your financial goals. People have different financial goals ranging from growing money to earning returns, saving for retirement, and attaining financial independence. The first step to investing is identifying your goals, quantifying them, and prioritizing them in order of importance to you.
- Understand your cash flow. Determine how much money you have coming in each month and how much of it you are spending. This way, you can see how much you have to invest. If you find that you don’t have much to put aside for investing, you can try some hacks to help you save money and support your investing goals. You could also look into making some money by monetizing your skills.
- Strategize. You should only invest money you are willing to lose because, although investing is rewarding, it comes with some risks. It’s also crucial to create an emergency fund. As a general rule, the fund should contain at least 3-6 months’ worth of your monthly expenses to fall back on during tough times.
When this first step is done, you should have an idea of how you’re using your money, plus how much you have to begin investing. The next step is research.
- Research where to invest
Africa is a big continent and each country comes with a different economy. You have to understand the economic and geocultural landscape of the region you want to invest in otherwise you risk losing your money.
While some African countries are seen as more attractive for investing, you could always start with the local market that you’re most familiar with, thus minimizing your risk. There is, of course, the option to venture outside the continent for international investment opportunities. Figuring all this out requires thorough research.
Still on research, you’ll also need to choose what you will invest in. This brings us to the next step.
- Determine your instruments of choice
Investments are grouped according to the characteristics they have in common, in what are called asset classes. These classes include:
- Cash or cash equivalents
- Bonds or fixed interest securities
- Alternative investments such as cryptocurrency
Within each of these classes are different instruments, which you can choose to invest in. For example, shares will include equity in various companies the same way there are many types of cryptocurrencies (e.g., Bitcoin, Ethereum, and Tether) and commodities (e.g., gold, silver, and crude oil) out there.
Choose what works for you based on where you want to invest. For instance, if you’re in Uganda, you could look into several investment opportunities available in the country. Similarly, if you’re in Ghana or South Africa you could consider what the Ghana Stock Exchange (GSE) and the Johannesburg Stock Exchange (JSE) have to offer, respectively.
Don’t be afraid of exploring your options and looking into less common instruments. The important thing is to exercise caution and do your due diligence before choosing.
You’ll also need to consider how you will invest in these asset classes and instruments. On top of stock exchanges, there’s the option of mutual funds and exchange-traded funds (ETFs), for instance.
Both options contain built-in diversification (which we’ll cover in a minute) and can be beneficial for a beginner investor. However, unlike mutual funds, ETFs can be purchased or sold on a stock exchange the same way that regular stocks can.
Your choice should be based on how much risk you’re willing to take on and how much you know about a given asset class or instrument. Not sure, where to start choosing investment instruments? This handy guide to building an investment portfolio from scratch could be very helpful.
Once you know what you want to invest in, it’s time to put your money into the market.
- Invest a.k.a put your money in the market
Gone are the days when you needed lots of money to start investing. A platform like Chipper Cash allows you to start investing in fractional stocks with as little as $1. Yes, just one!
You can start investing with as much or as little as you want. That said, make sure to follow step five to minimize your risk of losses.
- Diversify your portfolio
Regardless of your investment style, diversification is crucial for mitigating risk. You could diversify your portfolio by spreading your money across investment types or regions. When you diversify, your investments will play off each other’s gains and losses, thereby limiting your risk.
But you will need to know how to diversify right. You don’t want to end up not diversifying enough, or worse still, over diversifying.
Grow your money with simple investing for African youth
Traditional investing is on its way out. In today’s world, everyone — including the African youth — can use investing as a tool for building a better financial future and even some wealth.
The best part is that some platforms and tools are simplifying the investment process even further. Chipper Cash not only helps young Africans invest in stocks without breaking the bank, but the youth also have the option to trade Bitcoin across Africa. On top of that, African youth can manage their money quickly, effectively, and reliably.Investing doesn’t have to be a hassle. Sign up for a Chipper account today on Play Store or App Store and start growing your money the smart and simple way.