Recently I was talking to an old lady and she was telling me how she has invested over
N500,000 into shares and has nothing to show for it. I’m sure you also have heard similar stories, people buying paper assets in the wrong companies.
Paper assets are investments like stocks, bonds, mutual funds etc. They represent ownership in a particular company .
Very simply defined, someone has a company but doesn’t have the capital to finance it, you step in and provide finances by means of buying shares or other paper assets, you become a owner of that company in as much as the company is being financed with your money. From the Profit After Tax (PAT) of the company, you get to receive your own share in the form of dividends or other forms of payment. Simple right? However, this can involve some technicality.
They are one of the easiest forms of investing and a beginner can start at this level. All you need do is to approach a stockbroker or you can buy directly from the company in a case of public sales. However if you are using a stockbroker, ensure he/she carries you along and you also make your own analysis.
It is very important to note that while paper assets represent an easy-asset class, it requires high level of skills and knowledge to reduce your chances of errors. Also, you have to know how to read and analyse financial statements. For the fact that a company declares profit doesn’t guarantee it is a good investment option. A company can declare profit in a particular year and be in huge debt.There are so many other things to look out for. Do not hesitate to seek professional advice and lastly do not be misled by the crowd.
Join us again next week Monday.
To your financial independence and freedom
Originally posted on June 18th 2018 on www.thefinancialliterate.wordpress.com (A previous version of The Financial Literate)