Investing as a Young Cameroonian
Investing involves setting cash aside to grow in 'real terms'. That is, your money accumulates faster than inflation (the rising costs of goods and services). Investment is not a get-rich-quick scheme. In fact, the faster your rate of return the higher the risk.
In this column, we are going to talk about the importance of investments as a Cameroonian youth, debunk some myths about investing, and how we can invest in an economy such as Cameroon.
As with everything that concerns our personal finance, investment requires a sacrifice of some present asset such as time, money, effort, or physical good.
Why should we Invest as Cameroonian Youth?
• Benefit from an early start
Starting early allows you to be able to try your hand at a lot of investments, take more risks and make mistakes since you can recover from wrong decisions early. Also, as a young individual, investing early means by the time you are 40years old your investments have matured, and you will be steadily earning passive income. Again, as concerns personal finance, starting early helps you build a healthy spending-saving balance. Since you are committed to your investments, you will have less available income at hand to spend.
• Grow our wealth
Investing helps us acquire the things we would have otherwise not been able to acquire while working a single job. It helps us grow our portfolio. With your investment, you make money on your money.
• Leave a legacy to your Heirs
As Africans, we know too well the importance of inheritance. We live in an economy where uncertainty is the order of the day. It is important for our children and or spouses to be able to live well long after we are gone. The only way to do this is to find other streams of income. As we grow older, get promoted, or get better jobs so do our responsibilities increase. It is therefore not a certainty that as we grow older, we would have more money to take care of our families.
What are investments myths? These are ideas that have been sold to Africans for a very long time on the idea of investment, either by our parents, the society, or the banks themselves. In the long run, this has built a negative or somehow bullish attitude toward investment. What are some of these myths?
• You need to be rich to be able to invest
This is not true. There are different types of investments that require different sizes in terms of capital. Moreover, most of the biggest companies we know started with as little as 50,000 FCFA Yes!
• You have to keep your money away
A savings account is not an investment. This is the idea the banks have been trying to sell to us from time immemorial. They tell us if we save you will get this amount of money as interest. How much is this interest? 25,000frs a year if you are lucky? And when we fall for this scam, the bank takes our money, invests this money, and makes huge returns.
But let’s take a step back. I am not saying we should not save. But we should save to invest.
• Buying a car is an investment
Unless you are acquiring a vintage car that increases in value over time, a car is not an investment. A car will furthermore increase the dent in your finances, because of the frequent costs associated with it. Not to mention that after a few years, the trends change, and we want to get a newer model. But guess what you won’t sell the car for more than the price you both it for. A car only increases our portfolio (which is also good security to have) but does not bring us money in return.
The same can be said about a house being used for the sole purpose of personal habitation. This only increases your portfolio but does not bring you any return.
• Investment Is not Get Rich Quick scheme
We all know this. We have all heard of schemes that looked so good to be true but still went ahead to invest because of our greed or because we wanted to get rich quickly. It will suit you to know that the market rewards long-term investors. As an investor what you need is a calm head and the discipline and patience to leave your investments to grow.
How do we invest?
The two most important things that we need to understand about the practice of investing are Risk and Return. It is important to know that depending on the type of investment the risk may be high or small. Take for example Real estate, which is acquiring a piece of land to re-sell or to build and resell or build for the sake of renting out, has a lower risk involved because it is one of the safest investments you can make. Everything being equal, as the years go by, landed property tends to increase in value. However, because the risk associated with it is relatively smaller, the payout period is longer. Real estate can therefore be considered an investment that brings a lot of yields but needs a lot of patience. It is also a good investment to start at a young age as it builds over time.
The above is just an example I sued to explain the concept of risk and reward. The higher the risk involved in a particular investment the higher and faster the return. In the end, it all depends on you. How strong and courageous are you? Investing is not for the faint-hearted and it is important to take time to properly study and investigate before we decide on what we want to invest in.
What are the ways in which you can invest as young individual?
• People are your assets
There are two categories of people when talking about investing?
-Those who want to invest in themselves(their own business)
-Those who want to invest in someone else’s business.
One of the biggest problems we face in Cameroon today is linking up those in need of money with those that have money to invest. Where do these two groups of people meet? Some will say the bank does that for us, we deposit money in our bank account and the bank uses it to invest in people through loans. However, there are two problems wrong with this. First the investors who deposit money in bank accounts only get chicken change in terms of returns under the disguise of ‘interest on their saving account’. Secondly not all the money loaned out by the bank are geared towards business not to talk of small startups.
What if we could invest in people directly? What if two or three or five, ten people come together and invest in business project? What if we could invest 100,000 FCFA in that poultry business your cousin has been talking about? The key word here is PEOPLE. When we are starting out as an investor with limited funds or even limited knowledge, we should think of ways to partner up with people. Yes, it is true that doing business with people can end u being messy, but that is because we do not follow the right channels. Imagine teaming up with five other people and starting a business with five million francs. In three to five years depending on the nature of the investment you could get enough money back to start your own business or invest in another business and the cycle continues.
• Stocks and Bonds
Another way to invest as a young individual is through bonds ad stocks. As a beginner, I always recommend starting with these as it gives you some form of leverage and experience before getting into riskier investments. They are also relatively safer than other investments. It may also take an average of 3-5 years to get good returns. My friend used to say, ‘if you have some money you would like to forget about, invest it in stock’. However, concerning stocks, it is always important to do your research and due diligence of the company you would like to invest in.
Unfortunately in Cameroon at the moment, the Douala stock exchange has only three companies listed and with the bureaucracy involved, it is almost impossible to participate in the buying and sale of stocks.
However, did you know that you can purchase bonds from the Cameroon Government for as little as 300,000 FCFA (Minimum buy)? If you have some money to keep away this can be a great first step and it slowly immerses you into the world of investing.
• Entrepreneur or investor?
How do you want to invest? There are two ways in which we can invest. In yourself and in someone else? I do not belong to the school of thought that glamorizes entrepreneurship over having a Career. I believe that there are people who are cut out to be entrepreneurs and there are those whose passion and strengths lie in the board room.
As a young individual just starting out as an investor, it is better to invest small amounts of money in two or three different small companies than to invest a huge sum of money in one business. This helps you diversify your risks. As time goes by, you become better at making decisions and knowing which business is best for you to invest in. It is also important for you to follow up. I would never encourage a young investor to be a sleeping partner with no say in the affairs of the company when the said company is a startup. You have to follow up on your money, and follow up with the running and even if you are just an investor it is important to dedicate at least an hour of your time every day to find new ways together with the business owner to improve the business.
On the other hand, as a young inspiring Entrepreneur, you are wondering, what business do I start, how can I make money? Is there a service you can render which needs little or no capital to start? Is there something you are very good at and can find a way to market it? It is important we ask ourselves all these questions and always try to be on the safe side, because as a newbie in the field of entrepreneurship, your mind is still fragile to the aspect of loss, and you do not want anything discouraging you from something that could be the best thing to happen to your finances.
There are two things I always tell people who want to invest in themselves: Believe in your product/service and always be ready to adapt to the changes in the market. Indirectly I am saying, it is important to start a business that can be changed or repurposed to suit market changes or changes in consumer behavior.
I would like to conclude this column with a personal favorite quote of mine by Warren Buffet :
‘Never invest in a business you cannot understand'.