Leaving large sums of idle money in your bank account might not be as good an idea as you think.
Perhaps it gets topped up with a little interest every month; those periodic payments may look significant. But you could be missing out on a whole range of ways to boost your cash reserves, and ultimately, your net worth.
Despite a fairly common opinion to the contrary, there are a good number of investment opportunities open to working class people in Nigeria. The problem isn’t a scarcity of investment vehicles offering handsome rewards; it’s the disconnect that exists between those opportunities and the people who seek them. Here, we aim to bridge this gap by putting valuable information about key investments in front of you.
These are five of the most value yielding investments in Nigeria right now.
How about making money from financing the government?
This is what treasury bills afford you. They are issued by the Federal Government through the Central Bank, and are acquired by investors who pay in exchange for a promise to get refunded with interest at the end of a specified period. That period, the tenor, may last 91 days, 182 days or 364 days. In 2017, buyers got up to 22% interest payments on their treasury bills.
Treasury bills are probably the safest investment you could make. There’s no risk of losing your funds, and it has the backing of no less than the Federal Government of Nigeria. Earnings from it are also tax free. What’s more, t-bills (as they’re called) can be used as collateral.
While you’re not likely to get treasury bills directly from a Central Bank public auction (which takes place every two weeks), you may purchase them from existing holders, such as banks, discount houses and stock brokers for as little as ₦5,000. The amount of returns you receive will depend on the prevailing interest rate, the sum you’ve invested, and the length of the tenor.
Private companies might seek to raise capital from the public as well. One option that’s open to them is selling commercial paper to other institutions or individuals. These commercial papers are, in effect, a “promise to pay” a specified sum at a future date to the party that buys it. That sum may include a potentially sizeable (double digit) interest payment.
Commercial papers, like treasury bills, are short term investment instruments. They may mature between 15 and 270 days from the day they were issued.
Banks and discount houses are typically appointed by companies to sell and make payments for commercial papers (CP) on their behalf. So if you’re interested in buying a particular company’s CP, you’d want to get in touch with the financial institution that’s mandated to trade it.
A note of caution: this isn’t risk free (unlike treasury bills). The issuing company may pay you a fat or lean reward, depending on the success of its (the company’s) operations.
Nigeria’s population is growing at an astounding rate, but there aren’t enough houses to shelter them. The country’s housing deficit is enormous, and expanding still; current estimates suggest that it needs at least 17 million housing units to close this gap.
A need this size is a gold mine for investors. High demand for residential and commercial spaces are driving property prices sky high. New housing estates are springing up in strategic corridors in or around major cities. There’s profit to be made here, and the margins are likely to rise as time proceeds.
You can either launch into real estate yourself or get involved through a company’s real estate investment vehicle.
Federal and State governments issue and sell bonds to raise money for capital projects. These bonds are sold monthly by the Debt Management Office (DMO) on behalf of the government.
Government bonds are long term investments; they may have tenors of three, five, seven, ten or twenty years. They aren’t risk proof either, so you should be prepared to take interest payments that are lower than what you expected at the start. On the upside, risky investments such as this are generally more rewarding if they do pay.
Here, you’ll be helping to fund an early stage startup or enterprise with high growth potential, in return for a share of its profits. You can do this through a Venture Capital firm which pools money from individuals and institutions and invests it in emerging businesses.
This is the riskiest of the investment options. It could also produce the highest rate of returns for you. To lower the risk of incuring loss, you should investigate the track record of the Venture Capital firms you want to give your money to. Watch for positive signs of their investments bringing in good returns for their clients, or a red flag of underperforming investment portfolios.
Another useful tip would be not to throw cash at Venture Capital investments unless it’s money you can afford to lose.
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