Only Invest What You Can Afford to Lose — What Does It Really Mean?

let's break it down the first question isn't what stock should i buy because this is what we hear almost every time when people ask about the stock market rather it should be what is this money for because money isn't just money some money is for emergencies some is for school fees some is for a house some is for retirement some is simply capital you are trying to grow and those different purposes should influence what you do with the money if five million era is sitting in your account and you've already decided that it is for your child school fees you shouldn't suddenly treat it like spare investment capital just because the stock market is doing well that money already has a job And that brings us to the second question.

When will I need it? Once you know what the money is for, ask, when do I need it? This is where things get really interesting.

Because an investment that might make sense for money you won't need for the next 15 years could be completely inappropriate for money you need in three months.

And we saw a very good example of that on the NGS this year.

Up until around May, the market had... being on a strong bullish run.

We're seeing record highs.

Portfolios were rising.

And when you are watching that happen, it is very easy to think, why should I leave my money sitting there? Let me put it to work.

Then June came and the market took an 11% nosedive.

Now, imagine you add $5 million asset aside for school fees.

You have been watching the market rally.

So you decide, let me invest this money for a few months.

I will make some money before the school fees are due.

Then the market dropped 11%.

That 5 million Naira becomes roughly 4.45 billion Naira.

But the school still wants 5 million Naira.

So now you're faced with a decision.

Find the 550,000 Naira somewhere else or sell your investment while it is down.

And that is the point.

The problem is it's simply that the market failed.

The problem is that you needed the money while the market was down.

You didn't have the luxury of waiting.

So before you invest, know your timeline.

If you need the money soon, you have less room for investments that can experience significant short-term volatility.

If you don't need it for many years, you have more flexibility, which brings us to the third question.