What is the Best Savings/Investment Option for a 6-Months Goal?

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Question

Please, for a short-term goal of six months, what is the best savings option that would yield some sort of interest?

Should I save in dollars, buy stock or what?

Answer

There are many options when it comes to deciding how best to save/invest. To narrow down our options, it's best to classify all options as low-risk, medium-risk, and high-risk asset classes. When it comes to short-term investment goals, the best option is to go for the low-risk asset class. This is because low-risk assets are more stable. They do not fluctuate as frequently and as drastically as medium- and high-risk investment classes. For better context, these are examples of the different asset classes:

• Low-risk assets: High-yield savings account (HYSA), fixed income securities (e.g. treasury bills, bonds, etc.)
• Medium-risk assets: Some ETFs, some mutual funds, etc.
• High-risk assets: Stocks, cryptocurrencies, etc.?

A HYSA is one that gives a sizable interest rate for your savings. A HYSA does not fluctuate in prices. Therefore, if by the end of the six months, you decide to pull out your funds, there is no risk that you would be withdrawing less than the amount you initially deposited. Ladda is an example of a HYSA.

Stocks, on the other hand, do not fit within this short-term frame. Stocks (and other high-risk assets) are best suited for longer periods because of their high-risk nature.?

It is also important to note that all investments come with a form of risk.?

The alternative to investing your money is to leave it in the bank, and not spend it. What is the risk involved here??

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Question

How do I invest? Where do I invest? How much is the least money I can invest?

Answer

How can you invest?

• The first step to investing is deciding that you need to invest. After doing this, the next thing is to get informed. Getting informed/acquiring financial literacy is a very important step if you want to invest and do so rightly. The alternative is to hand your funds over to an asset management company to help you invest. But this is 2022, we advise that you take the time to feed yourself with the necessary information that you need, and then you can invest and thrive at it. This is what the MoneyAfrica community is about.

Where can you invest?

• There is a wide range of options. As stated in the question above, investment assets are classified as:
• Low-risk assets
• Medium-risk assets
• High-risk assets

So, where should you invest? You should invest across the board. Because investments vary in risk levels, it is important to build an investment portfolio that contains a portion of each of these asset classes.?

The next question that comes to mind is how much you should put in each asset class. To answer this, you need to first gauge your risk tolerance. Are you a low-risk, medium-risk, or high-risk investor??

Let’s look at an example of how an investor with low-risk tolerance with N100,000 could build his/her portfolio:

• Low-risk assets: N40,000
• Medium-risk assets: N30,000
• High-risk assets: N30,000

You would notice that the asset class with the highest proportion, is the low-risk asset class.

How much is the least money you can invest?

• This varies across different assets. Generally, the minimum amount required to start investing across the asset classes is very low such that with N5,000, you can still build a diversified investment portfolio. You should, however, aim to increase your earning capacity, so that you can invest more.

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