The Financial sector in Nigeria (and globally) has experienced significant turmoil because of the pandemic outbreak. Despite its many challenges, the need for investments seems to grow even more. You could attribute this to the information available to the public; and the more activity there is, the more significant the growth.
One prevalent issue concerning the Financial sector is discussing investments. Investments are a vital factor in the financial system, and they play a major role in its very operations.
What are investments?
Investments are the sacrifice of particular present value for future value. Simply put, it’s putting an asset into a form that should increase its value. Usually, this process involves putting down money into some financial activity that could yield an increase in value and become profit (traditionally referred to as return). The general aim and motivation behind investments are to increase wealth and financial status. Investments come with an uncertainty; you’re not sure if your money will yield profits or losses — and this uncertainty is referred to as risk. A common rule in investing is that high-risk investments usually yield high returns; the higher the risk, the higher the expectations. In most cases, lower risk investments generate low returns; the same goes for the losses.
What kinds of investments are there?
There are a variety of things to invest in. The most common ones are stocks, bonds, mutual funds and annuities. They all work with different technicalities.
What are the best types of investments, and why?
If you’re looking to invest your money in Nigeria, these are the best probable options to consider;
- Federal Government Bonds: FGN bonds are one of the best options because they offer both security and safety while still creating wealth. Investing always comes with risks, but with FGN bonds, this risk is considerably lessened; as the Federal Government is highly accountable. These bonds arise from the government’s need to raise funds, and they have a tenure of between 2 to 20 years. Interests on FGN bonds are paid semi-annually, pending the maturity date when the principal (actual money invested) is repaid. FGN bonds can be sold before their maturity dates.
- Treasury Bills: Treasury Bills are short term obligations of the Federal Government of Nigeria with maturities of up to one year or less (usually around 90 days, 180 days or 52 weeks). The good thing about Treasury bills is that you receive your investment income upfront because treasury bills are usually sold at a discount rate (for example, =N= 900/950 instead of =N= 1000 — the discounted part being your profit). They are also great investment options because they are very liquid
- Commercial Papers: this is another excellent investment option. Commercial Papers resurfaced in the country in 2013, and they’re a perfect way to invest in the short term. Commercial papers are more or less the short terms of Treasury Bills in the sense that they only take a minimum maturity date of 15 days and a maximum of 270 days. However, commercial papers offer more return because they are higher in risk, primarily because they are private-sector issued. Not to worry, though, because usually companies that issue commercial papers have been proven to be financially grounded.
- Mutual Fund: in a mutual fund, an investment company pools money from shareholders and invests it in a group of assets. Following a stated set of objectives earlier stipulated. The objectives could either be to generate income regularly or to preserve the investors’ money. It is a collective investment. Mutual funds are significant for those new to investing or do not seek high-risk investments. Check this post to learn about mutual funds in Nigeria.
- Stocks: thanks to 2008’s economic recession, and the mishaps that resulted from it, stocks are what many consider a touchy subject— a no go area for many. However, despite the risks involved, investing in stocks is still a very valid option for investments. Stocks refer to ownership of a company, and this ownership is represented by shares which stand for a portion of the company’s assets and earnings. You get to own a piece of the company through your investments, and investment income comes in the form of dividends.
Investing in Nigeria can be profitable with the proper knowledge to guide your decisions and there are many options available to choose from. However, getting the help of an expert is not a bad idea when considering investment options.