Lately I have received emails from my readers requesting that I suggest for them stocks which they can buy. Most of them are looking to invest in the long term hoping that the value of their investment would be good enough to pay for their Children’s education, retirement, a project etc.. This in someway is an encouraging news considering that interest in the stock market waned a couple of years ago following the stock market crash of 2008/2009. Despite this I get a bit reluctant to give investment advice regarding stocks preferring rather to have them seek for safer investments.
But before we get to which safe investments are available we need to ask a few questions. How much exactly do you have now? How Much can you put away monthly? How many years do your project for? This questions are very important and you will see why.
A. Putting a lump sum money aside in an investment
Suppose you have N2million now and decide to invest it in an asset that pays a 10%pa Interest rate. Your plan may be to use the money after 10 years to pay for your children University fees meaning that your investment will be for 10years and you will not withdraw the interest at all and also reinvest the interest.
By just earning 10% annually on your N2million that amount will more than double to N5.18million by the time your Children are ready for University.
B. Keeping Lump Sum money aside and contributing an equal amount yearly
Some of us receive salary up fronts or some form of allowances from our work place annually. Assuming you receive an advance of N2million yearly and decide to stash that money away annually in an investment that yields 10%pa for the next 10years and also reinvesting the interest.
The above table shows that at the end of 10 years, your 2million annual contribution would be worth about N35million in 10years.
What type of Investment guaranties these returns?
Again the stock market is not where you want to be if you are looking for guaranteed returns and this is because of the volatility of the market. Luckily, the Nigerian bond market is fairly robust and provide a yield that is equal to and if not more than the 10% interest rate for a 10year bond. Therefore as in A & B above, you can walk up to your bank or investment house and fill up an application to purchase an FGN Bond (How to Invest in Bonds). Please note that the figures above are as a result of the power of compound interest. Therefore to enjoy compound interest you must instruct your bank to re-invest every interest you get in a bond that can offer you a similar rate of return (10%) or even higher. Mutual funds are also a good way to invest however, I am not sure they are able to offer this type of yields constantly for the long term. Fixed deposits with banks are alternatives as well but not as guaranteed and safe as the FGN bonds.
C. What if I want to buy the bonds every month rather than just put out a lump sum?
That is also a good idea and can be a useful form of saving for future projects. For example, supposing you are not sure of how much you need to put aside in buying bonds monthly to be able to have N50million at the end of 10years. At the same annual interest rate of 10% your result is as follows;
1. What this means is that if you invest N244k every month in bonds that pay 10% per annum for the next 10years that amount will be N50million at the end of the 120months.
2. If the N50million above is all you need for retirement then it means you can actually withdraw N416,666 from the amount every year till you die. And you do not need to even save an inch or even withdraw from the N50million provided you continue to invest in an asset that gives you a 10% return or above every year. All you are doing is just spending the interest (see below);
The concept above is derived from annuity and compound interest which many of us were thought in secondary school. Achieving this investment goal off course depends on a few factors, some of which are;
1. An ability to find an Investments that can give you a guaranteed return of 10% or above. Currently, only Nigerian Bonds provide this kind of yields for the long term. Though they carry a little risk they are still the safest bet yet. Note that a rate lower than 10% can still give you the future value you desire only that your contribution will be more.
2. Financial Discipline – This is perhaps the hardest part considering the temptation to want to spend. You must stick to your investment goals and develop a thick skin against some of the distraction society can create.
3. Steady Income – You must also have the ability to produce steady income stream that will back your periodic savings. You can achieve this by having a paid employment or by being an entrepreneur or even a combination of both. Without a steady income your goals become difficult to achieve.
4. Stable Government and Economy – A stable Government and Economy is critical to ensuring the government does not renegade on its pledge to repay the bond price at the end of its tenor as well as interest payments periodically.
5. Interest Rates – Interest rates are hardly stable. They go up and down depending on the economy and markets. Whilst some current bond coupon rates are 10% or above one cannot be certain it will remain the same for the next 10 years. This affects your future investment or reinvestment funds. Funds invested at 10% or above will continue to earn that much if you hold to maturity.
Send me an email if you need an excel (as above) template to help you create more scenarios
DMO debunks misappropriation rumour, clarifies missing N2.2 trillion in 2018 Appropriation Act
The DMO has debunked rumours of misappropriation of a N2.2 trillion debt service provision in the 2018 Appropriation Act.
The Debt Management Office of Nigeria (DMO) has vehemently denied the rumour making the rounds that it was unable to account for the sum of N2.2 trillion allocated to its office in the 2018 Appropriation Act.
The agency in a recent disclosure available on its website described the claims as not only false but extremely misleading.
It is pertinent to note that the rumours became rife, after DMO honoured an invitation by the Public Accounts Committee of the House of Representatives, to explain how it spent the sum of N2.2 trillion provided in the 2018 Act. The DMO appeared before the aforementioned committee on the 26th of February, 2021.
Clarifying the issue, the DMO explained that of the N2.2 trillion provided in the 2018 Act; only the sum of N721, 251,798.00 was appropriated to its agency, while the remaining N2.1 trillion was earmarked for Debt Service. In lieu of this, the DMO emphasized that the appropriated sum of ₦2.2 trillion was not available as the DMO’s total allocation.
What they are saying
Commenting on the issue, a part of the press release reads: ‘’ The DMO wishes to emphasize that the provisions in the Annual Appropriation Acts for Debt Service, including the 2018 Appropriation Act, are dedicated for Debt Service payments only; that is, for the repayment of Principal, Interest and Other Charges for both Domestic and External Debt.
“Indeed, the funds for Debt Service are never released to the DMO for spending, rather, in line with the mandate of the Office of the Accountant-General of the Federation (OAGF), the funds are domiciled with the OAGF, who on the advice of the DMO, effects payments directly to the creditors as at when due. Such creditors include multilateral and bilateral lenders like the World Bank, African Development Bank, Exim Bank of China, investors in Nigeria’s Eurobonds, as well as, investors in securities issued in the domestic market such as FGN Bonds, SUKUK, Green Bonds and Nigerian Treasury Bills.”
It also went further to justify the need for Debt Servicing, emphasizing that: “The general public is invited to note that servicing of the public debt is absolutely necessary to ensure that Nigeria remains credit-worthy and retains or improves on its sovereign rating which ultimately, will support growth and development. It is for this reason as well as transparency purposes, that Debt Service is expressly provided as a line item in the Annual Appropriation Acts.’’
What you should know
- The 2018 Appropriation Act authorized the Federal Government of Nigeria to withdraw a total sum of N9, 120,334,988,225 from the Consolidated Revenue Fund, in a bid to meet expenditure requirement in the 2018 fiscal year.
- A breakdown of the 2018 Act showed that; N3,512,677,902,077 was earmarked for recurrent expenditure, N2,873,400,351,825 (capital expenditure), 2,203,835,365,699 (Debt Service and DMO’s allocation) and N530,421,368,624 (Statutory transfers).
DMO announces March 2021 FGN Savings Bond offer for subscription
The DMO, on behalf of the Federal Government of Nigeria, has offered for subscription, the March 2021 FGN Savings Bond.
The Debt Management Office (DMO), on behalf of the Federal Government of Nigeria has offered for subscription, the March 2021 Federal Government of Nigeria Savings Bond.
This is contained in a notification published on the website of the agency on Monday. According to the notification, the savings bond offer comes in two tranches;
- 2-year FGB Savings Bond due March 10, 2023: 5.181% per annum
- 3-year FGN Savings Bond due March 10, 2024: 6.181% per annum
- Opening Date: March 1, 2021
- Closing Date: March 5, 2021
- Settlement Date: March 10, 2021
- Coupon Payment Dates: June 10, September 10, December, and March 10
- Units of sale: N1,000 per unit subject to a minimum subscription of N5,000 and in multiples of N1,000 thereafter, subject to a maximum subscription of N50 million.
According to the circular, the offer is backed by the full faith and credit of the Federal Government of Nigeria and charged upon the general assets of Nigeria.
Interested investors were however advised to visit their website in order to get the list of stockbroking firms appointed as distribution agents.
What you should know
- Nairametrics had reported the offer for subscription of a similar Savings Bond in February with interest rates of 4.214% and 5.214% per annum for 2 years and 3 years tenor respectively.
- The interest rate for the latest offer is, however higher than the offer announced in February. This could be a move to attract more investors to subscribe to the securities.
- The FGN Savings Bond is an investment product issued through the Debt Management Office (DMO) on behalf of the Federal Government.
- It also qualifies as securities in which trustees can invest under the Trustee Investment Act, and is listed on the Nigerian Stock Exchange.
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