Investment Opportunities In Nigeria – How & Where To Invest Money

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Most people don’t employ savings & investing principles to their life. One has to save and invest to grow their money for achieving their financial goals. Saving and investing can be a great way to make your money grow & work for you.

It’s best if you start investing early, as the years progress you will see your well-thought investments grow into a very good source of income, which can provide you with a financial safety net on a rainy day.

There are a number of ways to invest your money depending on your goals. Short term investments can provide you with good returns quickly but are also volatile & riskier. Long term investments are relatively less volatile, but you will need to stay invested for extended periods of time to see results.

The various investment tools on the market today can confuse you and it can be difficult to clearly see the benefits one tool has over another, therefore, it is important to understand the risks and the possible returns each investment carries and what investment tools should be used to achieve your financial goals.

We have listed some of the popular types of investing opportunities available to Nigerians classified in 3 categories – for beginners, experienced investors and speculators.

A) Investment Options for Beginners
As a new investor, you should focus more on the stability of your investment rather than the returns. So investing in low-risk, fixed return instruments are ideal to start out with as they safeguard your capital and provide you with predictable returns.

These options are generally considered safer as compared to financial market investment options as these are backed by your bank or the government and can be used for savings with little returns from 3-12%. These options are available for both short term & long term investors.

Save & Grow money with your Bank
A bank deposit is one of the oldest forms of investment. Banks accept deposits from customers and pay them an interest rate on these deposits. Interest is provided to depositors because these deposits are generally used to provide secured loans to other customers. The interest rate on a loan generates income for the bank, allowing them to pay interest to their depositors.

Saving money in large, well-established banks are a great way to make low-risk investments that will see regular growth.

There are 2 main ways you could save money with your bank. Most common way is Savings Deposit which are short term deposits with no fixed term and customers can withdraw anytime hence banks offer low interest rate. Most banks in Nigeria provide a 1.5% – 5% annual interest rate on a savings account depending on bank.

Another way is Fixed deposits which are deposits with long term commitment generally which can range from 30 days to over a year, their interest rate could vary from 7%-12%. And depositors are penalized if they withdraw funds before their tenure.

One can easily open a Bank Deposit Account by visiting a nearest branch of any major bank or through online on Bank’s website, making this an easily accessible investment option for first-time investors.
Invest in Federal Government of Nigeria (FGN) Savings Bonds
FNG Savings Bonds are debt instruments issued by the Federal Government of Nigeria. These bonds allow you to provide a line of credit to the Federal Government of Nigeria for a fixed period of time, in return you will earn interest on your investment.

FGN Savings Bonds are easily transferrable as they are registered on the Nigerian Stock Exchange and can also be traded Over the Counter (OTC) on FMDQ Exchange.

The interest earned on these investments is tax-free and they can be used as collateral for loans. FGN Savings Bonds are great for new investors are they carry low risk and strong returns.

B) Investment Options Suited for Experienced Investors with risk appetite
These investments have a potential to offer higher Return on Investment (ROI) but are subject to market risks. These options carry higher risk as compared to above options for beginners.

These are available for both long term investing & short term for speculation. But shorter-term increases risk profile of these investments. So it is important to understand your risk appetite and what each instrument has to offer.

Let’s take a look at some of these investments and how they work.

Stocks & Indices
As an experienced investor, you can start investing in volatile instruments like shares & indices where you can invest in companies or whole industry/sector. Nigerian investors can invest in domestic as well as international stocks.

Investing in Domestic Companies
You can invest in Nigerian public sector company shares that are listed on the Nigerian Stock Exchange (NSE). It requires you to have a stock trading account opened with an NSE registered stockbroker and a CSCS (Central Securities Clearing System) account with a unique Clearing House Number (CHN). Once both these accounts have been set up & verified, you can place share trading orders through your broker.

Investing in International Stock Markets
Investors can broaden their horizons by participating in the international stock markets. There are a number of Nigerian apps that allow investors to trade on the international stock market and invest in large multinationals like Alphabet, Apple, Microsoft, Tesla, GM, etc.

Investment apps like Chaka, Bamboo, Trove, PiggyVest, and Rise provide a wide variety of global stocks to choose from.

Mutual Funds
Mutual funds or Unit Trusts are a great investment vehicle for investors that want to mitigate the risks associated with financial market instruments. Mutual funds are professionally managed investments that leverage debt and equity to provide investors with benefits of both types of instruments.

Mutual fund managers invest in a variety of instruments like shares, bonds, commodities, short-term debt instruments and more to create a stable portfolio for you to buy.

Mutual funds provide advantages like diversification, which helps reduce concentration risks in investments. An investment portfolio that relies too heavily on either debt or equity will either not provide investors with the returns they require or expose their investments to risks, mutual funds are a great way to diversify your portfolio. It also allows small investors to invest in shares of larger companies due to their lower minimum investment requirements.

There are a variety of mutual funds that you can invest in to meet specific financial goals, liquid funds or open-end funds do not carry a lock-in period, allowing you to redeem your investments at your convenience. Some of the top-performing mutual funds can provide investors with returns up to 50% per annum. Although, it is diversified and managed by professionals but there are still many market risks associated with it.

Mutual Funds or Unit Trusts can be traded via ETFs on NSE or via investing apps in Nigeria like Cowrywise. It’s important to check whether Mutual funds manager is licensed by SEC of Nigeria.

Exchange-Traded Funds (ETFs)
ETFs are similar to mutual funds in many respects, like, they too invest in a variety of securities, markets and asset classes like stocks, bonds, commodities, fixed income, multi-assets, international markets etc.

ETFs often track an underlying index or instrument and are listed on the stock exchange, therefore, ETF shares are traded just like any other shares throughout the day. These investments are great for investors looking for secure investments that can provide diversification to their portfolio.

Top-performing ETFs can provide 6.5-10% 30-day SEC yield to its investors.

Non-Government Bonds
Just like FGN Bonds which are debt instruments issued by the Federal Government of Nigeria, non-government bonds are debt instruments issued by parties or organizations other than the Federal Government.

Non-government bonds can be confused with Debentures, but the main difference between these two instruments is that bonds are secured by an underlying physical asset.

Non-government bonds are relatively safe instruments, but, as they are not government entities their creditworthiness may not be that high. Bonds do also tend to draw lower returns than Debentures.

Real Estate Investment Trusts
Real Estate is possibly one of the oldest forms of investment, today you can participate in this market by trading in stocks of Real Estate Investment Trusts (REITs).

REITs pool in funds from a number of investors to procure and manage property income and mortgage loans. Just like stocks, REITs are traded on the NSE through registered brokers.

REITs fall under three main categories in Nigeria i.e.: Equity, Mortgage and Hybrid.

Equity REITs invest in commercial & rental properties and they mostly earn from rental income, they often perform well when property prices are rising. While Mortgage REITs invest in loans or mortgages in real estate, they earn from interest rate on loans. Hybrid is mix of equity & mortgage and can provide diversification to the investors.

Commodities
Nigeria is rich in raw materials and boasts a thriving commodities market with its largest industries being crude oil and petroleum, which account for 10% of the GDP, 83% of the total exports and 70% of the government revenue according to Organization of the Petroleum Exporting Countries (OPEC).

Other commodities like natural gas, lumber, iron ore, agriculture and livestock also play a large role in the growth of the economy. Investing and trading in these commodities can be done through the commodity exchanges like Nigeria Commodity Exchange (NCX), LCFE, AFEX.

C) Speculative Investment Options with Considerable Risks
Forex Trading and CFDs
The foreign exchange market allows investors to make money through the movement in the prices of currency pairs. It is the place where all types of participants like banks, companies, investors, governments, individuals – exchange or speculate on currencies. It is one of the most volatile markets to participate in and is therefore suited to seasoned investors.

Retail traders often trade forex in Nigeria as CFD which is very a risky and complex instrument. Forex Brokers usually offer very high leverage on CFDs on forex which can be risky for the investors if not used properly.

There are a number of apps and brokers that offer CFDs on currencies, the returns on some of these CFDs can be attractive but they do carry significant risks. Due to the volatility of the forex market and the leveraged exposure of the CFDs, these contracts need to be approached with caution.

Traders must always choose a reputed forex broker that is regulated with FCA, FSCA, CySEC or ASIC.

Cryptocurrency Speculation
Bitcoin and other cryptocurrencies are a popular medium of speculation these days and investors often buy them in hope of appreciation in future.

Cryptocurrencies derive their value from their supply and demand which can be difficult to predict. Since cryptocurrencies are a relatively new instrument, these investments are recommended for experienced investors with a very high risk appetite.

Investment in Cryptocurrencies can be done through local crypto-exchanges or through CFD brokers.

Bottomline – A word on how to invest
Investments are a great way to secure finances for future endeavors and there are a number of investment instruments to suit almost every financial goal.

Determining your financial goals and setting a timeline to achieve them can give you a clearer picture of which investment instruments suit your needs. It is also important to determine your risk appetite and the amount of risk you are exposing yourself to with each instrument.

Always ensure you read the offer document or terms of an investment carefully before investing your hard-earned money anywhere.

– Pulse Ng

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