Should I Invest In HYIPs?

This article is part of a Finance series (here) I started a while ago. Although it's not sequential with the rest, it has become necessary that I share some things about this subject. Within the past few months I've received dozens of phone calls, some from friends I haven't heard from in a long while and one from someone I have never even met asking for my advice and opinion. Lots of people seem to think I'm an authority in this regard. I'll not confirm that notion, but I'll not deny it either. Hope you gain some things as you read, and you'll invest wiser and safer.

Today, the average Nigerian has become investment savvy. He is no longer satisfied with keeping his money in the banks, and he has realized the futility of sticking to a monthly salary. A number have gone ahead to train themselves in operating such investment vehicles as Stocks, Mutual Funds, Real Estate and Foreign Exchange. Everybody wants to learn how to invest, and everybody wants to invest. So some professional money managers took advantage of the situation, and created several investment programs, collecting money from investors and paying them returns on their investment. Very soon, lots of these investment programs sprung up, both genuine and non-genuine, and as always, it is difficult to distinguish the genuine ones from the non-genuine. Some of these programs have been around for years, some are months old and some are still in the initiation process. They are commonly known as HYIPs (High Yield Investment Programs), and their history goes a long way.

Today, a typical HYIP will promise you high returns on your investments with them - much higher than you'll get if you save in a bank. They all claim to invest your money in a number of things ranging from Oil and Gas, Foreign Exchange, Gold, Precious Metals and Stocks. They have no publicly available "Balance Sheet" or "Earnings Report" and so no one knows exactly how true their claim is. The important thing to most people is that they deliver the returns promised, at least to a large extent, and so everyone is happy.

The HYIPs on ground presently can be categorised into three. Those who promise monthly returns on investment eg. Nospetco, WealthZone, UpHenry, etc; those who promise a one time payment after several operational weeks Eg, Treasure Line, Wealth Solution, etc; and those who promise increasing returns every operational week for a particular number of operational weeks. Eg Pennywise, Cash Seed, etc. Operational weeks vary from 10 working days to 20 and some might even last longer, and pay-off varies by percentage. I won't go into the nitty-gritty of the operations of these HYIPs. A few bloggers have already written extensive posts and you can easily get any information you need. If however you need more information, you can contact me directly and I'll point you in some right directions.

I was prompted to write this article by an event which happened some time ago. The EFCC had sent out a notice to all banks which are used by HYIPs to put a stop order on their accounts, while they carried out investigations into the operations of these HYIPs. Many people all over the country were nervous and hearts were in mouths for a few days. A friend of mine could not eat well because he had borrowed most of the money he invested into these HYIPs. My phone rang dozens of times with people asking, "How Far?, has EFCC cleared .... (and they would mention the name of one of the HYIPs)?". Fortunately, the accounts were reverted back to status quo within a few days and many people could breathe freely again. But the damage had been done. People began to doubt. A lot of my friends who were affected swore never again to invest in these HYIPs to save themselves the agony and anguish they had to go through. I have therefore put together "The Rules of HYIP Investment". If you must invest in HYIPs, follow these rules and your risk will be reduced to a minimum.

1. Never invest more than you can afford to lose.
   Whatever you choose to invest, consider what will happen if you lose it. If losing it will make you catch hypertension or something similar, then reduce it to something you won't miss if you lose out. This is the most important rule.
2. Get in (and out) early.
   For the HYIPs which promise the highest of returns, the longer the HYIP has been around, the greater the probability that they'll soon go down. Don't waste time making your decisions and waiting to see if people are actually receiving returns. If you're going in, go in early, collect your proceeds and get out quickly.
3. Diversify.
   Spread your investments over various HYIPs. That way, if one goes down and one performs, the returns easily cover your losses. Don't put all your money into one HYIP no matter how attractive it seems. Think of what might happen if the HYIP suddenly goes down.
   
4. Secure your returns.
   Don't reinvest your returns into the same HYIP. Transfer your returns immediately into more stable investments like Stocks, Mutual Funds and Real Estate. That way you're covered if something happens collectively to all the HYIPs.
   

Also note: The higher the returns, the higher the risk. The shorter the investment term, the higher the risk. So, if you're diversifying, balance your investment across both risky and less risky HYIPs. Don't diversify by spreading all your money across the very risky HYIPs.

I do not guarantee that you won't lose. Investing in HYIPs will always be risky. There is no way to fully eliminate the risk. No matter how stable a HYIP seems, there is still an element of risk. If you are averse to taking risks, then these HYIPs are not for you. Invest in safer and more secure investments which will allow you to sleep at night, and whatever happens don't let sentiments determine your investments. Better to be safe than sorry. However, if you're the risk taking type, with some money that you won't miss if you lose, then by all means you can go ahead and invest. You might be lucky, many have been.

Wishing you luck in your continued quest for Financial Freedom.

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Your salary. Is it really yours?

Before you read this post, please take a minute to read my previous post "Life Cycle of a Lagosian" available here. I'd like to say thank you to everyone who read that article and asked for a continuation through comments, mails and calls. It took me some time to get this together (especially the investment calculator). Enjoy!

If you are a employee like I am, then you probably look forward to the end of the month when you'll get paid your salary. Depending on where you work, what you do and what post you occupy, your salary will vary from several thousands to several hundreds of thousands and possibly several millions (I wish that was me!). Yeah, some are that lucky, but everyone still falls into the same category. If month end does not come, you don't get your money. But hold on, did I say "Your Money"? I think not!

The truth is that for many people, their salaries don't really belong to them. It belongs to other people. A typical employee's salary would end up belonging to several people which might include a Landlord, Car Dealer, Washman, Shopping Mall (e.g. The Palms), Market (e.g. Tejuosho), Fuel filling stations, Auto Mechanic, Nepa, and just about anybody who provides goods or services in exchange for money. Unfortunately, for many people especially Nigerians in Lagos, they think the money is theirs. Without meaning to, they unconsciously spend part of that money everyday on one expense or the other. Day in, day out, someone collects his own share of that money. Suddenly, 2 weeks after payday, they check their bank account and discover their salary is almost gone and they begin to wonder how, when, where, why ... the simple truth is this - it's not their money.

Some people do better. They put aside a certain amount every month and save. If you fall into this category, I'll congratulate you on a good initiative. However, I'll still tell you that the money does not belong to you. Saving is good, don't get me wrong, but it's not good enough. Let's take the case of a typical worker who is disciplined enough not to delve into his savings at the slightest sign of rain and he has managed to save N100000 over a year. If he saved this money in 2006 at a rate of 3% per annum (which is the best he can get from most banks), he'll have a total of N103000 at the end of the year, with a "gain" of 3000. Now, a recent analysis showed that in 2006, the inflation rate of the Naira was 13.5%. Translation: Your money has increased by 3% but it's value has decreased by 13.5%. In other words, what you used to buy for N100 now costs N113.5. Technically, he has gained N3000 through saving, but in the real world, he has lost (N13500-N3000) = N10500. Who now owns the money? The economy! - another money collector which collects it's share of our money.

What then exactly is my money? My simple definition is this "Money that belongs to you means money that's working for you". Defining "Money working for you" brings me to the subject of Investment. Many people think investment is for the stockbrokers, business owners or people with large amounts of money, they're wrong because everyone ought to be an investor. Before your money can start working for you, you have to be an investor. Now stop reading and think for a few minutes, because your next decisions might change some things in your life.

I assume you've decided to become an investor so you can have money working for you. Congratulations because that's one of the best decisions you'll make on your path to financial freedom. Like in the previous article, I'll give you some tips.

1. Start with a plan. Good investors always have a plan. Make it detailed but not too rigid. Ask yourself this question. How much will I need to survive each month if I want to live comfortably? This is the amount you'll need per month in order to be financially free. Write down your answer. I'll call this value the "break-out value".

2. How much you can invest per month?: Decide on an amount of money you can set aside from your salary every month for the purpose of investment. You are not allowed to go below this amount, however, you can exceed it. Write down your answer. I'll call this the "Monthly Contribution".

For the purposes of this article, I've created an investment calculator that can help you see the advantages of investing. Click on the button below to open the calculator in a new window. Enter your "Monthly Contribution", "Interest rate", and "duration". Finally, click calculate to get the final value and the breakout value.

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Let me illustrate with an example. If I contribute N10000 monthly to an investment that yields 20% per annum and I decide to continue contributing for 5 years, then at the end of 5 years, I'll have a total of N1071590 (roughly N1M) and I'll be making N17859 monthly for the rest of my life without have to make any more monthly contributions. (Note that this amount exceeds my initial monthly contribution). Yes ... I know you're going back to try the calculator again ... and you're probably wondering how come you didn't know this all along. Feel free to try with different values for duration and monthly contribution. The final value of N1071590 is what I call "Money working for you" to produce N17859 monthly. Simply put, you can pay yourself a salary of N17859 every month without having to work for it.

I've probably got your brain working overtime now ... just go ahead and transfer your thoughts to paper and actions. Get your plan straightened out and make sure you write them down. There's no specific format for the plan but try and make it something you'll understand easily. Note down the "monthly contribution", and when you want to break out. Include any other thing that might help you to keep to your plan. Remember the previous tips "Have a good reason" and "Have lots of determination"

Now here comes the tricky part (and the practical part). How can you find an investment that will gurantee you at least 20% per annum? Good news! There are many, each with a different level of risk and credibility. But be rest assured that it's possible to find such an investment with minimal risk. I'll talk more on that in my next article in this series. Watch out.

Yours in the race,
Tayo

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Life cycle of a Lagosian

TIME TABLE

Monday - Friday
Wake up at 5 am. Prepare for & leave for work at 6 am. Work from 8 am - 8 pm (+/- 2 hours). Get home at 10 pm. Sleep at 12 am.

Saturday
Wake up at 10/11 am. Visit Mechanic, Drycleaner/Laundry, Electrician, Store, Estate Agent, Market etc. Get back home and sleep again till evening.

Sunday
Sleep, sleep, sleep!

Lagos today is divided geographically into different regions, most prominent of which are the Island (Consisting of V.I., Ikoyi, Obalende, C.M.S./Marina), Island Extension (Lekki, VGC, Ajah & Beyond) and Mainland (every other place). Unfortunately, provisions for proper flow of traffic between these three regions have become grossly inadequate and insufficient, largely due to the ever increasing population of people & vehicles and other contingencies which have become common during rush-hours. All these result in one thing - Traffic Jams commonly called "Go-Slow" or "Hold-up". In a bid to avoid these hold-ups, since Go-Slow is no longer a tenable excuse for lateness to their offices, Lagos workers have resorted to leaving their houses very early. Thus they have unconsciously prepared the time table above without realizing it, and for some workers, this time table begins as early as 5:30 am.

Let's take the example of a newcomer to the Lagos corporate world, someone fresh from school & NYSC. He successfully (and fortunately) gets a job with Big Firm in Big Building on Victoria Island. As is usual, he stays on the mainland, say Ojodu/Berger. In order to get to his place of work on time, he has to follow this time table strictly day after day, week after week, month after month and year after year. In some years, marriage comes in. This is followed closely by children. He becomes a family man thus, responsibilities increase, and so do expenses. At work, he gets a promotion and/or a salary review, or he changes jobs (not as easy as it sounds) all in a bid to earn more income. He buys a car or two, moves into a bigger house or starts building his own house, his children grow and need to be sent to school - he does not want them to suffer like he did and so sends them to the best schools he can afford or barely afford. After 5-10 years of working in Lagos, many things have changed about him. His outlook has changed, his income & possessions have changed and invariable, his age has also changed. However, one thing refuses to change. The time table! Yes, he remains bound to it ... following it daily, weekly, monthly. In fact, it probably gets worse. Some weekends find him in the office, and he often has to go on some official trips meaning he won't sleep at home on some nights. Time becomes an asset not to be joked with and he tries to outsource every activity that could take out of that time e.g. Car Wash, Laundry, Household activities, etc. And time keeps ticking, and he keeps working, and the time table remains, followed strictly to the letter.

I've been a loyal follower of this time table for some time now, and so have many of my friends. You can see us on the roads every working day of the week in a never ending flow of traffic all going towards one direction. I can almost imagine some deity firing a gun while yelling "On your marks ... Get Set ... GO!" in the wee hours of the morning, signifying the start of a race. I also imagine all the athletes taking off from various starting lines into the race against time.
For the next 5 hours, the tracks are busy accommodating the "racers" The major track is the 3rd Mainland Bridge, side tracks are Herbert Macaulay Road Yaba, Dolphin Estate Ikoyi, Falomo Bridge, Ozumba Mbadiwe, Broad Street Marina, etc. God help you if you're caught in those tracks at the wrong time. Between 5pm and 10pm (in the evenings), the tracks are reversed and the racers face the opposite direction. Day in, day out, this race goes on. I looked into my crystal ball ... and I do not see a change in the next couple of years. People will always work in places much farther than their places of residence. And since they will always have to work, they have no choice than to keep to the time table.

I've had lots of meditations, and I'll share some with you. A question you should ask yourself is this, "Do YOU have to work?" If you lose your job right now, how long can you survive? Or let me put it this way, if your salary is stopped, will you continue working? Agreed, there are some people who are working because they love their job and they would gladly do it for free. However, at least 95% of Lagos workers work because they get a paycheck at the end of the month. This seems to be a steady source of income and so they spend each day working in earnest waiting for "Month End" when questions like "Them don pay?" & "Money don enter?" would be answered in the affirmative.

Now think about this, what if you could get different paychecks from other places or avenues? What if you had Multiple streams of income flowing your way daily, weekly, monthly and yearly? What if your extra income could match and even surpass your salary? What if your sources of income are guaranteed and secure? I'm sure you would say goodbye to days of waking early and rushing into the traffic to get to work, without giving it a second thought. Well, I have good news. There are ways out. You can get multiple streams of income. You can become independent of your salary ... in other words, you can be financially free.

In the next few weeks, I'll be posting a series of articles on "Managing your finances". Now I don't claim to be a financial expert, neither am I financially free (yet), but I do have enough knowledge to give you some tips and point you in some right directions. Right now, I'll give you 2 requirements with which you need to get started. They are foundations which will keep you going for a long time.

1. Have a good reason why you want to be financially free. Ask yourself this - If you don't ever have to work again, what would you do with all that spare time? Think about your hobbies and all the things you want to achieve but cannot because of time. It's very important because without a good reason, chances are you'll never be financially free.

   "'Why' is what separates us from them, you from me. 'Why' is the only real social power, without it you are powerless" - Merovingian in the movie The Matrix Reloaded.

2. Have lots of determination. The road is never straight. As you begin, you'll have to take some risks and more often than not, you'll record some loss. But don't see it as a loss, see it as a price of learning. No knowledge is ever wasted. At a point, you might even be worse off than your current position ... but don't give up. Stick with your plan and keep educating yourself. It'll pay off some day. Sooner than later.

   "I have not failed. I've just found 10,000 ways that won't work." - Thomas Edison (Inventor of the Light bulb)
   

Reflect on these two points and watch out for the articles. Wishing you luck in your quest for financial freedom.

Yours in the race,

Tayo.

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