What is a good investment?

Is it an investment that promises a 33x return in 6 months? Is it 2 sure odds every weekend till your 2K grows to 5M? Is it a savings account offering 4% p.a., but you know you won’t lose your money? Or is it all of the above?

Answering this question has made lots of people rich. It’s why Warren Buffett is called the Oracle of Omaha. Picking the right investments is how he even became a billionaire.

The thing is, we all know we need to invest, but if we need to be as smart as Warren Buffett to spot a good investment, then there’s an issue. In fact, there’s an even bigger issue when someone as smart as Isaac Newton cannot identify a good investment.

Many Nigerians experienced the stock market downturn of the late 2000s. That’s why many people in their 40s to 60s would rather stuff their money in a mattress or leave it idle in a bank account. However, your investment options are not limited to 2% returns per annum or potential scams that promise 100x returns in 100 days.

You can definitely identify a good investment.

During the lead-up to Naira Life and at the event, Dr Emeka Ucheaga, Head of Strategy, Research and Financial Inclusion at Credit Direct, gave detailed pointers on how you can identify a good investment.

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How Do You Actually Spot a Good Investment?

You don’t need to be Warren Buffett. You just need to run any investment through four simple checks.

1. Who is behind it, and are they licensed?

Frank the Forex Trader sliding into your DMs with screenshots of his profits is not a regulated investment. He has no licence, no oversight, and no one to answer to when your money vanishes.

A real investment platform is licensed, and its owners are not a mystery. As Dr Emeka puts it, a major red flag is “if the investment platform is not licensed by regulators like the Securities & Exchange Commission or the Central Bank of Nigeria (CBN). Also, if you can’t find details of the platform’s owners/management.”

If you can’t name who is holding your money and who regulates them, that is your answer.

2. Is it too good to be true?

If an offer promises to double your money in two days, understand what that actually means: an investment with that kind of “guaranteed” upside carries a very similar chance of losing you everything.

Dr Emeka calls out the myth directly: “High risk, high returns as a financial principle is a half-truth. You only generate high returns when the high risk fails to materialise. If it does, you get big losses. That is the complete truth.”

So if it sounds too good to be true, it’s most likely a lie to get you to invest.

3. What is your risk appetite?

The right investment for your friend might be completely wrong for you. If you lost money in the stock market years ago, equities may not be where you find peace. And if an investment will give you sleepless nights, it isn’t worth the returns, no matter how good they look on paper.

This is why Dr Emeka anchors every decision to you, not the trend: “Three things determine what you should invest in: your objective, risk appetite, and investment horizon.” Know yours before you commit a single Naira.

4. Do you actually understand it?

If you can’t explain how an investment makes money, you are not investing; you are guessing. So many Nigerians have lost money to things they did not understand and maybe if they understood, they could have made a smarter investment choice.

Dr Emeka’s rule is refreshingly simple: “Only invest in things you understand.” For anyone still learning, his advice is to “start with simple, less risky investment options like Yield that allow you to build wealth gradually over time with fixed returns” and use that time to learn the more complex investment instruments before you use them.

Next time you hear of an investment opportunity, don’t just throw money in it because it sounds good. Don’t buy that stock just because that’s what everyone else is doing. Ask these 4 questions first. If you do, Frank the Forex Trader won’t use an AI-generated trading chart to convince you to invest.

If you’re looking for the right place to start investing, that’s Yield by Credit Direct.

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