The start of a new year is a period of stocktaking and goal setting for many individuals. Living in a developing country like Nigeria means making money is always on the top of the agenda.
Here are a few asset classes that we think will do well in 2019, and are worth investing in.
Equities
The Nigerian Stock Exchange performed poorly in 2018 closing down 17%, and has continued to decline in the new year
Investment case
A depressed market, however, provides a good opportunity for investors to pick stocks cheaply. Many companies are trading at a six month, and in some cases 5-year lows.
Foreign investors, a key player in the market, are staying on the sidelines till after the elections.
Likely risk
While prices are cheap, they could get cheaper as they have done in the recent past. If militant attacks persist, foreign exchange liquidity could take a hit, and lead to investors rushing out the market.
Likely return
One can make between 5%-100% per annum.
Period
6 to 12 months
Minimum amount
N500,000
Treasury Bills
Investment case
Treasury Bills may not have been lucrative as they were in 2017, due to the inflation rate trending down in the first half of 2018, but they gradually moved upwards as inflation began to rise.
Foreign exchange pressures mean the CBN may be forced to hike rates, in a bid to maintain foreign investor appetite.
Likely risk
Treasury bills have zero risk as the government is not expected to default.
Likely returns
You can make between 10 and 15% per annum in 2019.
Period
91 days, 182 days and 362 days.
Minimum amount
N1 million and above; anything less is not worth it.
Who is this for
I have idle cash for the short term, want to make returns in line with inflation, but don’t have an appetite for risk.
FGN Bonds
This is a government fixed income security that is offered for 2 years, 5 years, 10 years and 15 years tenors.
Investment Case
FGN Bonds are one of the safest investments in the country as they are guaranteed by the government. They are recommended for anyone with loose cash who is looking to save towards the future, and earn a fixed income over a long period of time. Interest is paid biannually and annually.
The Federal government has ramped up bond issuance in the last few years and 2019 will not be any different. Rising US interest rates, may lead to a slight change in focus, and increased domestic bond issuance.
2018 Performance
Yields on bonds trended lower in the first half of the year, before rising in tandem with higher inflation in the second half.
Likely risk
FGN Bonds have zero risk as the government is not expected to default.
Likely returns
You can make between 13 and 18% per annum in 2018.
Period
Minimum of 2 years though you can sell whenever you want.
Minimum amount
Anything less than N1 million would not yield a meaningful profit.
Who is this for
I have idle cash for the long term, want to keep up with inflation, but hate risk
Corporate Bonds
These are company offered fixed income security that is offered for 2 years, 5 years, 10 years and 15 years tenors.
Investment Case
Corporate Bonds are offered by large corporations looking to borrow money from the public in exchange for periodic interest payments. They are recommended for anyone with loose cash who is looking to save towards the future, and earn a fixed income over a long period of time. Interest is paid biannually and annually.
2018 Performance
2018 saw several corporate bonds issued in the first half of the year, largely due to interest rates which trended lower, and the Federal Government’s policy of switching to foreign debt.
C and I Leasing Plc issued a N7 billion bond which was over subscribed to the tune of 33%. Tier two lender Union Bank Plc raised N13.5 billion through a bond issuance.
Likely risk
Unlike FGN Bonds, Corporate Bonds do not have zero risk. However, the companies issuing the bonds are assigned credit ratings by rating agencies. The ratings are reviewed periodically.
Likely returns
You can make between 15 and 18% per annum in 2018.
Period
Between 3 months and 10 years. You can also sell whenever you want.
Minimum amount
Anything less than N1 million would not yield meaningful profit.
Who is this for
I have idle cash for the long term, want to invest myself but can take on moderate risk.
Mutual Funds
This is basically giving your money to experienced fund managers to invest on your behalf in exchange for high returns. You also get to pay them fees for this.
Investment Case
Mutual funds are an easy way for individuals who cant afford to invest directly in assets such as equities and fixed income to do so. They are also a good asset vehicle for passive investors (investors that do not have the time to monitor their holdings on a regular basis.
Mutual funds are also an easier way for domestic investors to get into small slices of assets, they cant afford So rather than investing hundreds of thousands in an equity or treasury bills, they can buy units of a money market fund or equity fund.
2018 Performance
2018 performance was largely tame, due to the equally mellow performance of the underlying assets namely stocks and treasury bills.
Data from the Security and Exchange Commission reveals that Net Asset Value rose from about N440 billion as at January 5 2018 to N650 billion as at November 2 2018.
Likely risk
The risk of investing in mutual funds, or any funds for that matter, is that your investments may not be managed well. This can result in very little or no returns. It can also lead to loss of capital, even though this is highly unlikely. You also get to pay the fund managers fees whether or not they make money for you or not.
Likely returns
You can make between 10 and 14% per annum in 2019.
Period
3 months to 12 months. Though you can sell whenever you want
Minimum amount
At least N50,000 monthly.
Real Estate
This means buying and selling real estate, or owning one in exchange for rental income. Real estate also includes buying plots of land.
Investment Case
Investors in real estate point to the fact that real estate investment has always been a perfect hedge against inflation. They also suggest that it inherently has very strong capital appreciation over time. Some people prefer to purchase land in choice areas, hoping that in a few years’ time, property values in these locations will more than quadruple.
2018 Performance
There is no official data on performance of real estate in the country.
Likely risk
The risk of investing in real estate, relates mainly to fraud and falling property values. Due to the difficulty often encountered in verifying who owns properties, most investors end up buying real estate that are non-existent or owned by someone else who is not the seller.
Likely returns
If you are buying a property to rent, then expect rental yields to be anything between 2 and 6% per annum. This means a property worth N100m will likely fetch you rent of N2 million per annum. It is interesting to note that property yields are often inversely proportionate to property values.
Period
Long term
Minimum amount
You should have at least N10 million if you intend to buy a property. Plots of land can go for as low as N500,000 to N1 million. Your initial capital is also dependent on the location of the property.
Collective Investment Schemes
This is basically pooling funds together with your friends and family and giving same to a professional to manage on your behalf or you manage yourselves. For example, Investment Clubs, Cooperatives etc.
Investment Case
Collective investment schemes are very attractive to investors who are looking for higher returns on their investments from a diverse portfolio. CIS schemes can invest in real estate, equities, bonds, cryptocurrencies, farming or any business they deem fit.
2018 Performance
There is no official data on performance of collective investment scheme in the country.
Likely risk
The risk of investing in CIS is that the fund managers could mismanage it and rather than get the higher returns that you expected, erode the value of your original investment.
Likely returns
Returns are typically set by the owners of the CIS. We have seen some gun for returns as high as 25% annually. Some CIS also have lock-up periods for paying dividends, preferring to reinvest their profits compounded over a period of time.
Period
Long term
Minimum amount
Most CIS make monthly contributions of about N50k monthly.
Election merchandise/Service providers
2019 being an election year across the country means the Independent National Electoral Commission (INEC) and political parties across the country will need several services.
INEC offices will be a beehive of activities at this time, with the electoral umpire needing services such as buses to transport materials and staff. The huge crowd that tends to mill around them will also need to be transported and fed.
Political parties will need several services, such as branded items, as well posters, and logistics for rallies.
Investment cases
Election spending across the country cocould run into tens of billions of Naira, just at the Presidential level. Political parties and candidates keen on either remaining in power, or taking over are less finicky about spending as long as results can be delivered.
Outside the political circle, supporters of various candidates go out of their way to support financially and in kind.
While this a one time opportunity, the potential profit made, can equal to that earned all through the year.
Likely risk
Working closely with some political parties, may leave some companies at the risk of post-election violence.
Likely return
Services such as this tend to witness high patronage and little bargaining, as the cream of the crop are often fully engaged. The keen competition among all parties means services will be required all day round, and service providers can afford to charge a premium.
Period
Short term
Minimum amount
There is no money minimum amount involved.
Before you make that investment decision, make sure that whatever option you choose meets these criteria/rules:
- I can check the value of my investment whenever I like, real time, online
- The value of my portfolio is determined by the market and not by anyone or group of influencers
- You can also check the value or price of the assets in your portfolio online, 24/7
- You can liquidate your investment whenever you want and without restrictions
- There are no middle men, except broker facilitated trading engines.
- The market is regulated by government or self regulated by the internet community