Cash feels safe. You open your banking app and the number is still there. No red percentage. No corporate announcement. No CEO discussing a challenging environment.
But there is another risk that does not show up in your banking app: inflation.
The purchasing-power problem
Suppose you have ₦1 million. One year later, you still have ₦1 million. Technically, you lost nothing. But if prices have risen significantly, that ₦1 million may buy less.
There are really two questions: how much money do I have, and what can that money buy?
Stocks introduce a different risk
Stocks can potentially grow your wealth over time, but their value can move significantly. You might invest ₦1 million and temporarily see ₦800,000.
That does not necessarily mean you permanently lost ₦200,000. But if you need the money immediately and are forced to sell, the loss can become real.
Time horizon matters
If you need money next month, volatile stocks may be inappropriate. If you are investing for ten or twenty years, short-term volatility becomes less important.
Investing decisions should begin with: When will I need this money?
Stocks are ownership
When you buy shares, you are buying an ownership interest in a business. That business may generate profits, grow, pay dividends and become more valuable. It can also struggle.
Cash has a job too
This is not an argument to invest everything. Cash can be useful for emergencies, short-term expenses, upcoming obligations, opportunities and peace of mind.
A portfolio without liquidity can be just as stressful as one without growth.
Do not compare them as identical
Cash prioritises stability and liquidity. Equities prioritise potential long-term growth at the cost of volatility and risk.
The right balance depends on your circumstances.
The bigger question
The biggest mistake is asking where to put money before asking what job that money needs to perform.
If it is for school fees next month, it has one job. If it is money you will not need for ten years, it has another.
Once you understand the job, the decision becomes clearer.
Disclaimer: This article is educational and does not constitute personal financial advice. Consider your financial circumstances, risk tolerance and time horizon before investing.