Often, we tend to have all kinds of money at hand – our savings, some else’s savings, our rent, school fees, the category goes on. When an investment opportunity shows up, the urge to make a good return may sometimes push us to invest all sorts of money which often puts us in an unhealthy financial position.
Some money is untouchable, not because you won’t make a return on investing them. Rather because of the non-alignment between why you invest and those kinds of money.
The money you will need in a short time
Investing this kind of money exposes you to the risk of liquidating your investment when it is not due yet thereby paying a charge or liquidating it when the asset price is currently down. Asset prices don’t always go up, they fluctuate daily. You might end up needing that money on a day that it is trading at a price that will make you lose money. Don’t do it.
Money for a defined purpose other than investment
In this category, you have money like school fees, house rent, your emergency fund, and the likes. Notice that all the examples I mentioned here are money whose timing isn’t in your control. You can need your emergency fund immediately with no room for a delay. When your rent is due, you risk embarrassment if you do not pay up. And for school fees, you don’t want to be kicked out of school or want your children embraced for non-payment of school fees. Don’t invest this category of money as well.
An important caveat to that though, if the money is such that you are saving it for another due date which is months away e.g. rent in 12 months or 24 months, by all means, please invest. However, such should also not be placed in a very volatile asset class. Availability of this category of money when they are needed is key.
The money that is not yours
This point is important because of similar risks I’ve mentioned above. If you are the type that usually has someone’s money with you, the temptation might be high to “quickly make use of it” or to quickly invest it and make a buck on it. If you’ve done this well enough though, you would have learnt that it’s a bad idea as the person who kept the money with you tends to need such money when you don’t have them immediately. Thereby, forcing you to take a loss or other non-monetary loss (e.g. embarrassment). Even if the money is kept with you for a long time, as much as possible, resist the urge to invest it. Invest your own money alone.