Interest calculated on both the initial principal and the accumulated interest from previous periods. Albert Einstein reportedly called it 'the eighth wonder of the world.' Example: Invest ₦100,000 at 10% annual interest. After 1 year: ₦110,000. After 2 years: ₦121,000. After 10 years: ₦259,374. Your money grows exponentially, not linearly. Start early and let time do the heavy lifting.
A cash reserve set aside for unexpected expenses or financial emergencies like job loss, medical bills, or urgent car repairs. Financial experts recommend saving 3-6 months of living expenses. Keep it in a separate, easily accessible account — not invested in stocks or locked in fixed deposits. Example: If your monthly expenses are ₦200,000, your emergency fund should be ₦600,000 to ₦1,200,000.
An investment strategy where you invest a fixed amount of money at regular intervals, regardless of the asset's price. This removes the need to 'time the market.' Example: Invest ₦50,000 every month into an index fund. When prices are high, you buy fewer shares. When prices are low, you buy more shares. Over time, your average cost per share balances out. Less stress, better discipline, solid returns.
The total value of everything you own (assets) minus everything you owe (liabilities). Assets include cash, investments, property, and valuables. Liabilities include mortgages, car loans, student debt, and credit card balances. Formula: Net Worth = Assets - Liabilities. Example: You own a home worth ₦50 million, have ₦10 million in investments, and owe ₦20 million on your mortgage. Your net worth is ₦40 million. Track it quarterly to measure true financial progress.
The rate at which the general level of prices for goods and services rises over time, eroding purchasing power. If inflation is 15%, your ₦100,000 today will only buy what ₦85,000 could buy one year ago. Nigeria's inflation rate fluctuates but has been historically high. To beat inflation, your investments must earn returns higher than the inflation rate. Keeping cash under your mattress guarantees you lose money every year.
How quickly and easily an asset can be converted into cash without losing value. Cash is perfectly liquid. Real estate is illiquid — selling a house can take months. Stocks are moderately liquid (sell in seconds, but prices fluctuate). Emergency funds should be highly liquid. Long-term investments can be less liquid. Rule of thumb: Keep 3-6 months of expenses in liquid assets. The rest can work harder in less liquid investments.
The strategic distribution of your investment portfolio across different asset classes like stocks, bonds, real estate, and cash. Your age, risk tolerance, and financial goals determine your ideal allocation. A common rule: 100 minus your age = percentage in stocks. Example: At 30 years old, 70% stocks, 30% bonds/cash. At 60 years old, 40% stocks, 60% bonds/cash. Rebalance annually to maintain your target allocation.
The profit you make when you sell an asset for more than you paid. If you buy 100 shares at ₦1,000 each (₦100,000 total) and sell them at ₦1,500 each (₦150,000 total), your capital gain is ₦50,000. In Nigeria, capital gains tax is currently 10% on realized gains from certain assets. Hold investments longer to qualify for lower tax rates in some jurisdictions. Never let taxes alone drive your investment decisions.
A portion of a company's earnings distributed to shareholders, usually quarterly. Not all companies pay dividends — growth companies reinvest profits. Dividend yields range from 0.5% to 8%+ depending on the company and sector. Example: Buy 1,000 shares of a company at ₦50 each (₦50,000 invested). If the company pays a ₦2.50 annual dividend, you earn ₦2,500 per year. Reinvest dividends to buy more shares and supercharge compounding.
A market condition where prices fall 20% or more from recent highs, accompanied by widespread pessimism. Bear markets are normal — they happen every few years. Since 1950, the S&P 500 has had 11 bear markets. The average decline: 32%. The average duration: 13 months. Strategy: Stay invested, keep buying, don't panic sell. Bear markets are sales for long-term investors. Every bear market in history has eventually turned into a bull market.
A market condition where prices rise 20% or more from recent lows, accompanied by widespread optimism. Bull markets last much longer than bear markets. The longest bull market in US history lasted 11 years (2009-2020). Strategy: Stay invested, take profits periodically, rebalance, and don't get greedy. Bull markets end when everyone thinks they'll last forever.
A company that owns, operates, or finances income-generating real estate. REITs trade on major stock exchanges like regular stocks. They're required to distribute 90% of taxable income to shareholders as dividends. Nigerian REITs (N-REITs) offer exposure to commercial properties without buying entire buildings. Minimum investment: as low as the price of one share (₤100-₦1,000). Dividends typically range from 5-10% annually. Real estate investing for regular people.
A basket of securities (stocks, bonds, commodities) that trades on an exchange like a single stock. ETFs offer instant diversification. Example: Buy the S&P 500 ETF and you own 500 American companies in one transaction. Expense ratios: 0.03% to 1% annually. Compare that to mutual funds (1-2%) or actively managed funds (2-3%). Lower fees = more money in your pocket. ETFs are ideal for beginners and experienced investors alike.