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Debt Securities

9 TIPS to KNOW when NOT to INVEST

9 TIPS to KNOW when NOT to INVEST

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when NOT to INVEST

Every now and then we hear financial experts like me (just joking) advice people to invest money regularly and not spend all the time. In most cases, experts will advice that you invest more and save less if you are to attain financial freedom. But should one really invest all the time? Will the world come to an end if I do not invest? I do believe investing is good for everyone, however there are certain times when investing should just be kept aside.

1. When You cannot afford a Three Square Meal

3 SQUARE MEAL

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We have often read of people making several sacrifices in life just to attain an investment goal. Some sleep in their car, sell their houses, forfeit their jobs etc. However, you hardly hear anyone saying they went on a hunger strike just to attain an investment goal. It is certainly fool hardy when you have to starve yourself just because you want to put that extra money you would have used in eating a decent meal in an investment that is yet to yield a dime.

2. When You have a Health Problem

SICK AND HOSPITALISED

It certainly doesn’t make any sense investing cash you would otherwise use to cater for yourself when you are sick or have a major health setback. Your health is certainly not an opportunity cost to an investment no matter how viable. You want to be healthy enough to execute your dreams and not end up with a deteriorating health and yet see the investment remain a dream.  Investments is not wealth rather Health is Wealth.

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[Read Also: Difference between FGN Savings and Treasury Bills]

3. When someone Dear to You is in Need

NEEDY FRIEND

There are times when we have people dear to us who have  needs that (in all fairness) supersede our personal goals.

It could be that they have a health challenge or even a financial need to avoid bankruptcy.

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How does one explain sacrificing a sick wife or child in a bid to pursue an investment goal no matter how viable?

4. When You haven’t paid your Children’s school fees

School children

Imaging telling your child “Daddy can’t pay your school fees because he has to buy some stocks?” It makes no sense sacrificing your children’s education for an investment goal. They are mutually exclusive investments and shouldn’t even be thought of as substitutes.

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The most important investment is the education and welfare of your kids no matter what.

5. When You have a Debt to pay

DEBT

How many times do we see debtors giving us excuses to repay their debts despite seeing them making significant investments in other areas. You have someone owing you money and telling you he does not have the cash to pay now, yet they end up buying new assets. The same attitude is sometimes seen in companies who amass huge debts in the claim that they are investing.

Whilst it is okay to borrow to invest if the returns are higher than interest rates, it makes no sense investing when you have debts to repay.

6. When You cannot Afford to pay your Bills

PAY BILLS

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It is strange when I hear a lot of people with huge bills boasts about their investment achievements. How do you claim to be an investor and yet you are unable to pay your electricity bills, water bills, phone bills  etc. Does it make sense owing a supplier for months even though you end up spending money investing in new businesses or assets?

Investments should wait until you have cleared your bills and not the other way round. It is part of being financially prudent.

[Read More: A guide to how Mutual Funds work in Nigeria]

7. When You haven’t saved for the rainy day

RAINY DAYS

Life always presents us with ups and downs. It is inevitable that one day we will face a sudden financial challenge. It could be to bury a loved one, to celebrate a loved one, to cater for an urgent financial need etc. Sometimes when this urgency shows up we are not financially prepared and may not be able to liquidate our investments quickly enough to meet such challenges.

It is therefore important to stash away some part of our cash or return on investment in a fund specially designated for rainy days.

8. When the stock market is bullish

stock market watch

After the stock market crash of 2008/2009 I learnt a bitter lesson in investing: DO NOT INVEST WHEN THE MARKET IS BULLISH. A Bullish market is basically when the market indices are constantly up indicating an upswing in the price of equities. Whilst not totally bad for the stock market to have price appreciation, the problem however is that bullish markets always create a band wagon effect that ostensibly creates an artificial price valuation.

Equities become too expensive and quality stocks with great prices become scarce. It is often better to wait on the sidelines at times like that, rather than buy expensive stocks.

9. When Interest Rates are low

interest rate

In Nigeria, investing in the money market can be an unfair proposition when interest rates are just too low and below inflation. For most of 2011 and 2012 treasury bills and government bonds had double digit above inflation yields which were favourable for investments. However, when the rates, especially fixed deposits are below 8%per annum investing in such products present negative yields.

When interest rates are low, alternative higher yielding assets can be explored. It is however important to weigh the risk as well. If the risk in investing in alternative markets are too high for you, then, just stick to safer money market instruments no matter the yield.

[Read Also: Differences between an Angel Investor and a Venture Capitalist explained!]

Patricia

Ugo Obi-chukwu "Ugodre" is a chartered accountant with over 16 years experience in financial management, corporate finance and financial analysis. He is also a retail investor and a personal finance advocate with over a decade experience investing in the Nigerian stock market. Ugo is the founder/Publisher of Nairametrics and blogs regularly on the website.

1 Comment

1 Comment

  1. Afrikan Eagle

    February 10, 2020 at 1:33 pm

    “When interest rates are low, alternative higher yielding assets can be explored. ”
    Please what are these alternatives? It will be good to know. Thank you!

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Debt Securities

Some experts are uncertain of what to expect from money markets in H2 2020

In the meantime, liquidity in the Nigerian banking system is said to be below N100 billion

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Some experts are uncertain of what to expect from money markets in H2 2020

Money market experts are uncertain over what to expect as the second half of the year takes off. This uncertainty is specifically hovering over the treasury bills and OMO (Open Market Operations) side of the market, according to Constance Onyia, a Fixed Income Dealer with Access Bank Plc.

Speaking to CBN Africa, yesterday, about what is happening in the money markets and what to expect during the second half of the year, Onyia said the CBN’s changing strategy has made it difficult to be predictive.

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“Actually, we are expecting OMO auction tomorrow. But being that CBN’s strategy has changed (in the last two months they’ve not been rolling over all the maturities and sometimes they don’t even come for OMO), we don’t know what to expect; if there will be OMO auction tomorrow or not. And even if there’s an auction, they might no rollover everything on offer. So, we see that the strategy has changed a bit and we don’t know what to expect for the month or for the second quarter,” she said.

READ ALSO: African Development Bank to launch African Economic Outlook 2020 Supplement

Meanwhile, when the Head of Fixed Income Trading at United Bank for Africa (UBA) Plc, Bankole Odusanya, was asked the same question, he said “the Debt Management Office has a calendar and what is on play is simply that the exact amount that is maturing is what they plan to offer. If we saw that they increased the amount they wanted to offer, then you could be tinkering with your pricing. So, the amount that is maturing by-weekly (on Thursdays) is what they plan to raise.”

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In the meantime, liquidity in the Nigerian banking system is said to be below N100 billion. And because this liquidity level is not excessive, experts do not expect the CBN to come in heavily with OMO maturities. As Odusanya pointed out, the amount of OMO bills by the CBN has reduced significantly over the last few weeks, even as the apex bank now relies more on Cash Reserve Ratio (CRR) to control liquidity.

READ MORE: Nigerian Treasury Bills fall to 3.84% per annum

You may watch both interviews with Onyia and Odusanya by clicking here and here.

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Debt Securities

Nigerian Treasury Bills plunge to 3.39% per annum

The CBN sells T-bills on a bi-weekly basis to investors and it is one of the safest investments available.

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The latest data from the Treasury bill auctions concluded recently shows that Nigeria’s 364-day tenor fell to 3.39%. On the other hand, Stop rates printed lower for the 91-day tenor at 1.789% and 182-day tenor, which went for 1.91%.

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At the Treasury bill auction, the Debt Management Office sold N10 billion on the 91-day paper, N20 billion on the 182-day, and N58.857 billion on the 364-day bills.

Ladi Belo a treasury analyst at a Nigerian tier-1 bank told Nairametrics in a phone chat interview, commenting on the latest treasury bill auction. He said;

READ ALSO: CBN’s N154.38 billion T-bills auction over subscribed by 46% as rates fall marginally  

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“At the NTB auction that was conducted yesterday, we witnessed significant demand, especially on the new 1-Yr bill. This is still because of the exclusion of local corporates and retail investors from investing in Omo bills. As a result, the stop rates across board closed lower than the preceding auction at 1.789%, 1.91%, and 3.39% on the short, medium, and long-tenures papers, respectively. I expect these rates to go down further in the secondary market as market players try and fill their unmet demand.”

Quick facts: The massive disparity between the subscriptions and the offers recorded suggests investors are willing to earn a negative real return, compared to the higher risk in other assets such as stocks and real estate.

Basically, the CBN sells T-bills on a bi-weekly basis to investors and it is one of the safest investments available. Interests are paid upfront, with the principal paid in full upon maturity.

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READ MORE: Official: Nigerian Treasury bills calendar for Q3 2020

Understanding Treasury Bills: Basically, when the government goes to the financial market to raise money, it can do it by issuing two types of debt instruments – treasury bills and government bonds.

Treasury bills are issued when the government needs money for a short period, while bonds are issued when it needs debt for more than, say five years. The issuance of treasury bills is also used as a mechanism to control the circulation of funds in the economy.

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Treasury bills have a face value of a certain amount, which is what they are actually worth. However, they are sold for less. For example, a bill may be worth N10,000, but you would buy it for N9,600. Every bill has a specified maturity date, which is when you receive the money back.

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The government then pays you the full price of the bill (in this case N10,000), giving you the opportunity to earn N400 from your investment. The amount that you earn is considered as the interest, or your payment for lending your money to the government. The difference between the value of the bill and the amount you pay for it is called the discount rate and is set as a percentage.

Patricia
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Debt Securities

Telegram agrees to settle with SEC over $1.7 billion ‘unlawful’ digital coins 

 Telegram now has 30 days to pay SEC’s penalty and up to four years to pay back investors.

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Telegram agrees to settle with SEC over $1.7 billion ‘unlawful’ digital coins 

The world’s top social messaging app, Telegram has agreed to settle with the U.S. Securities and Exchange Commission (SEC) amounting to $18.5 million over its $1.7 billion “unlawful” token sale.

As part of the agreement, Telegram must also inform the SEC should it choose to issue another digital coin within the next three years. 

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READ MORE: Facebook to pay $550 million over privacy violations lawsuit 

 The settlement between Telegram and the U.S. SEC effectively ends the months-long legal battle between the two parties, which began when the SEC sued Telegram back in Oct. 2019  

 Telegram now has “30 days to pay SEC’s penalty and up to four years to pay back investors.” 

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READ ALSO: CBN warns SMEs not to pay any fee to access its N50 billion stimulus package

 Why it matters: Telegram has already stopped the TON project. Therefore, the settlement will not have an immediate effect on Telegram’s futuristic projects. While the official TON chain is inactive, community developers and validators launched a fork of TON (called Free TON) last month. 

As we’ve previously covered, this case and settlement could have more significant implications for other SAFT raises, especially for those projects that have yet to launch. 

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Explore advanced financial calculators on Nairametrics 

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