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Investment Tips

How to invest in uncertain times

Financial planning is having a plan for your finances in a manner that protects your cash flow from dissipation and/or loss.

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Nairametrics Financial literacy, invest intelligently, portfolio diversification, treasury bills, Your next of kin, or not?, Investing in uncertain times, Things to accomplish during COVID-19 lockdown

Financial planning, in simple terms, is having a plan for your finances in a manner that protects your cash flow from dissipation and/or loss.

Financial planning is a process; if you wanted a step by step guide on how to establish a financial plan, it would be: First, agree on a plan ⁠— what do you want to achieve? By when? Then, start an Emergency Fund, and settle your life insurance to protect your dependants from loss of your income. Only after you have done these can you start the journey of investing current income into available asset classes.

Investing in uncertain times

What should an investor do in these uncertain times of financial loss and meltdown in asset values?

Don’t panic

Look at your financial goals. Have they changed? If they have not, do not make any strategic financial decisions that will change your investment portfolio because of current uncertainties. If you have an RSA, or any investment fund set aside to invest money for the long term (more than 36months), then absolutely ignore the noise today and keep investing.

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Being worried is understandable in this time of global economic uncertainty, but do not simply dismiss your carefully prepared, long-term investment plan. If you own a good dividend-paying asset, be careful about selling because the price of that asset is falling. Selling an asset as prices fall is simply actualizing that loss, i.e., you move that loss from paper to reality.

[READ MORE: Between saving, investing, speculating, trading & gambling)

Review your budget

Remember, cash is king; it’s time to go over your budget and cut back on discretionary spending plans that drain cash away and reposition your budget for saving and only necessary spending. The coming months may see job losses and bulk buying of commodities, e.g., food. Prepare for this, keep non-essential capital investment down, and keep physical cash nearby. You can use your emergency fund and prepay for purchases, then simply replenish your fund later.

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Tap into your emergency fund

Even with a plan, you still have to pay bills, so if you need cash to cover non-discretionary expenses, this is the time to tap into cash and near cash saved in your Emergency Fund. An Emergency Fund is where you save 3 to 6 months of your non-discretionary expenses, i.e., expenses you must make like food and rent. An emergency fund is an important part of any financial plan, as it stops you from selling down your assets at a lower price to meet expedient cash needs.

Keep paying your bills

If you have credit cards and loans from banks, make sure you are making the minimum payments to ensure your credit score does not take a hit. Yes, it’s tough, but a good credit score is very important, as you can get lower Annual Percentage Rates on new applications for loans.

Continue investing

As the market prices fall, keep investing if you already do so on a constant basis. If your employer matches your retirement contributions, then keep investing, don’t lose that benefit. The goal for you is to adopt a Naira Cost Averaging approach. Naira Cost Averaging is simply buying same amount of a share at regular intervals, no matter the price. the volatility in uncertain times means that as share prices fall, the investors are also able to buy shares at that lower costs, helping to reduce the average cost per share and positioning the portfolio for positive return.

Keep in mind that this strategy only works with shares, not fixed income instruments like bonds. 

Look for opportunities

Keep in mind that the market prices of many assets are indeed falling, but the values of these assets may not have fallen in same proportion.

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For example, Zenith Bank Plc’s share prices have fallen by 46% over one year, but the PE is 3.87 with an implied divided yield of 23% (on N2.80 divided) higher than the double-digit Nigeria inflation rate of 12.2%. Look at the market prices falling as an opportunity to own quality stocks at a good bargain price.

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Another example? The S&P 500 has fallen 31% since February the 19th, the market is essentially pricing in a zero earning for most of the 2020 year; there are also headwinds with crude oil price war between Russia and Saudi Arabia, but does anyone believe the markets will remain at negative 30% for the coming 9 months? Is this a buying opportunity? What about China? Down 16% YTD, are Chinese stocks a discount today?

We have no way of predicting the future, but it’s better to acquire blue-chip, well-capitalized stocks, in a growing market segment like Alibaba, at a significant discount to her 52-week closing price.

investor, Steps to investing, Steps to developing a growth plan for your business, Breaking down the biggest misconceptions young people have about investing , Here’s how your business can grow revenue in tough conditions (PART 1), Here are ways to find the right investor for your business, How to build up your investment knowledge, This simple advice could help solve your investment challenges 

Pay down debt

Corporations also have cash needs. If you owe debt, significant debt, it may be a good exercise to call up your creditors and seek better terms on those loans. The enemy of bank lending is uncertainty, however, lack of bank credit in the system will create a cash crunch and most institutions will offer great terms if you were paying down your loans. 

[READ ALSO: Is investing in commodities only for the brave?)

Position yourself

Start to prepare a list of possible assets you want to buy. What should be your criteria for buying risky variable return assets?

  • Companies in a sector producing essential goods and services.
  • Highly capitalized blue-chip stocks.
  • Price Earnings Ratio below 15.
  • Dividend yield offered well above the market average of 4.5%. Keep in mind inflation rate of 12.2%.
  • High volume traded, average 1m traded share volume in 90 days.

However, you can keep it simple by looking at buying the index that tracks the stock markets, e.g., for equities, the Global X MSCI Nigeria ETF (NGE) invests in the largest and most liquid companies listed on Nigeria Stock Exchange. To hedge, buy fixed income; I prefer bank Commercial Paper because it offers higher yields than Sovereign bonds, but watch the issuer.

Remember, investing is risky. You can lose 100% of your capital; always seek advise before investing.

 

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4 Comments

4 Comments

  1. Ayomide Afolabi

    March 23, 2020 at 9:07 am

    How do i invest in apple or facebook stocks from Nigeria

    • Jessica

      April 18, 2020 at 7:26 pm

      There are some apps that can buy through. E.g Trove, Chaka, InvestBamboo.. I would advice you join the Money Africa Forum to know more.

  2. kanmi

    April 25, 2020 at 6:10 pm

    how do i join the Money Africa Forum

  3. kanmi

    April 25, 2020 at 6:11 pm

    how do i join the Money Africa Forum?

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Investment Tips

Retail franchise investment next gold mine for Nigerian investors- CIG

Retail franchise investment curbs unemployment  and create buffer for people looking for side hustle

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The Choice International Group (CIG) has tasked both unemployed and employed Nigerians to embrace retail franchise investment, as the initiative would curb unemployment in the nation  and create buffer for people looking for side hustle.

In line with a recent FBDS Study, there are over 450,000 Nigerian career professionals with minimum investible funds of N1 million, looking out for investment opportunities.

In the majority, these funds are looking for franchise type opportunities for ease of venturing and minimal failure risk.

As far as CIG chairperson, Diana Chen, is concerned, such investor should look no further but consider the group’s retail franchise investment opportunity, which offers Nigerian community mouth-watering offer of owning Gree & Lontor retail stores.

According to him, Gree is the world’s residential air-conditioner manufacturer, while Lontor provides high-quality, energy-saving and convenient rechargeable home appliances and lighting products for global consumers.

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He said, “Both brands have been built by the CIG into a world-class electronic retail chain in Nigeria opening no less than 20 brand shops in Lagos and Oyo over the last 18 months.

“The sales performance of its existing stores in the country makes Gree & Lontor one of the most profitable businesses in Nigeria with yields of an average return on investment of 50% and above per annum.

“CIG is offering investors the opportunity to own any of six regional logistics centres, or any number of Gree & Lontor brand shops in viable locations across Nigeria.

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“It is the decision of the company to open up these opportunities to the investing public through a Franchise Retail partnership.”

 

He added that the company has mapped out two investment models it says are simple, transparent, and hassle-free.

“The first model involves only six regional logistics centres located across the geopolitical zones in Nigeria.

“Whoever invests in this will require a capital outlay of $1 million, and become a mega distributor partner of the Gree & Lontor brand, and service a network of brand shops.

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“The second investment model involves the Gree & Lontor brand shops – retail franchise stores that require an initial capital outlay of N20 million.

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“The investor will secure a store size of 120-150sqm at any choice location, shopping mall, plazas, high streets and even residential neighbourhoods.”

What they are saying

Nigeria is a growth market for franchising and franchise development services.

Gbenga Ajayi, an Entrepreneurship analyst, said, “The retail industry comes second to the food industry among sectors with best franchising opportunities.

“As with other emerging markets, one of the challenges of franchising in Nigeria remains the strengthening of intellectual-property regimes so that franchise companies can transmit knowledge and franchise system concepts with the confidence that such know-how will be protected.

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Investment Tips

Where to invest N500,000 right now

Nairametrics interviewed financial experts on what assets they would invest in if they had N500, 000

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Since a full economic recovery this year is off the table, Nairametrics interviewed some investment experts, entrepreneurs, and corporate heads, on the assets they would invest N500,000 in. The responses varied from buying gold to investing in mutual funds or starting a business.

The world economy is projected to fall by 4.4% in 2020, an upward guide from an earlier predicted rate of -4.9% made in June. The IMF projected that social distancing due to the COVID-19 pandemic will linger till 2021, but the transmission of the virus will plunge globally by the end of 2022.

READ: BUA Cement shows resilience to marginally improve bottom line

Temitope Busari, CFA

With fixed income yields at the current levels, my N500k in today’s market will go into a dividend-paying stock or alternative investments.

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  • Depending on whether or not I can afford to risk some capital and barring timing constraints, I would buy a stock that offers periodic cashflow in form of dividends.
  • For alternative investments, I would explore high-yielding fixed deposits in the on-lending space.

READ: Thrive Agric: “Where is my money?”

Michael Nwakalor, Macroeconomist at CardinalStone Research

  • The yields in the fixed income markets are currently on the low and producing negative real returns, the equities market provides a viable alternative to earn a total return above inflation.

(READ MORE: Trading and Investment for beginners: How to prepare for the stock market)

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  • I like stocks in the banking sector, as a number of them remain undervalued by fundamental metrics. Several names are on the course to post near double-digit dividend returns by the year-end. A portfolio that includes the following counters – GUARANTY, STANBIC, ETI, FBNH, and ZENITH, should provide adequate exposure to the sector as well.

READ: Onyema, Oniha highlight opportunities for investors in fixed income market

Adaobi Okonkwo, Currency Trader of a leading Tier 1 Bank

  • With a few things to invest in, the most reliable investment that comes to mind is a mutual fund. The fixed income and money markets are currently experiencing a downturn; hence, investing in them could reduce my income spread.
  • However, with a mutual fund, my portfolio of investment in the capital markets is determined by the fund managers with a decent return on investments certainly above the risk-free rate. Gold is a commodity that would yield a good ROI within a specified time frame if I wanted to invest by myself.

READ: FG to inject over N198 billion on capital projects in power sector in 2021

Silas OZOYA, President/CEO, SUBA Capital

Though quite a small capital, it might not do much if you want to play the long-term investment game. However, it can set the ball rolling.

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  • I would invest it in a high yield investment platform that pays at least 5% returns monthly to cover running costs.
  • Put the money in a fixed deposit and leverage it as collateral to take a debt fund, with a 6 – 12 months moratorium from a commercial bank for a possible expansion of a profitable business. This way, you gain on the debt and still have your N500,000 intact.

(READ MORE:Nigeria’s Macro-economic dashboard for Q3 2020 – Comercio Partners)

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Ugonna Thelma Ohiri-Anyanwu, CFA

With a gift of N500,000, my risk appetite and drive for higher returns,

  • I would invest 50% of the funds (N250,000) on dollar and Eurobonds. This is mainly because of my future needs for FX and also as the need to hedge my currency risk.
  • I would invest 25% of the balance (N125,000) in Ethereum, which would give me a steady cash flow with medium risk.
  • The balance of N125,000 would be invested in Value company shares with low P/E and also stable dividend payments.

READ: CBN reveals framework for the N75 billion Youth Investment Fund

The overall investment portfolio allows for diversification, stable cash flow in both local and FX currency, and currency hedge. These would provide a solid mix between ownership of materially underpriced assets and high dividend-yielding assets.

Bottom line

Amid the rising COVID-19 caseloads prevailing globally, the financial experts interviewed above showed significant diversity on the assets they would invest in, coupled with their different appetite for taking risk reflected on their preferred choices made amid a blurry global economy era.

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Investment Tips

Where to invest $10,000 right now

Entrepreneurs, financial experts and investment analysts suggest what sectors or assets to invest in if you have $10,000.

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Where to invest $10,000 right now

The upsurge in COVID-19 cases around the world has kept global investors flocking the world’s safe-haven currency at an exponential rate, the high demand for the greenback is coming on the high geopolitical uncertainty prevailing in today’s financial market.

Also, it’s important to note at the currency market, the U.S dollar remains king. According to the International Standards Organization, 90% of currency trading done globally involves the U.S. dollar, most crypto assets, virtually the most liquid commodities are priced in the U.S dollar not forgetting about 40% of the world’s debt is dominated in the greenback.

READ: If you have N1m today, how would you invest it?

READ: Hackers, expose crypto wallets worth $150 million at Kucoin

So Nairametrics felt it paramount to ask a hedge fund manager,  entrepreneurs, and financial experts, about what sectors or assets they would invest in if they had, say, $10,000.

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Their responses were revealing and diverse as they were varied—ranging from; buying global equities, local stocks, real estate holdings to investing in digital assets.

READ: Key ‘side-hustles’ Nigerian Bankers supplement their income with

READ: What BBNaija winner, Laycon can do with N30 million  

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Gavin Smith, veteran trader, and managing partner at Panxora Crypto Hedge Funds.

I would scale into BTC $2,000 now, $2,000 when it comes off to $10,000, then add $2,000 at $9,000 and another $2,000 at the $8,000 level. If BTC then breaks above $13,000 I would buy any of the above orders that had not been filled of the remaining $2,000. I would put $500 into each of these four DeFi protocols: LINK, COMP, KNC, and OMG.”

READ: Real Estate Developers express fear over selection process of CBN’s N200 billion Housing Fund

DeFi is an exceptionally volatile market and these would need active management, but they represent an opportunity with exceptional upside potential. This is a market our analysts are building a profile in, to advance our DeFi hedge fund later in the year.

READ: Real Estate: A universal convertible survival tool

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Debo Adejana – Founder, MD/CEO – Realty Point Limited.

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I follow the investment wisdom that says, ‘invest in what you know and understand’. I know and understand real estate probably more than any other investment asset class.

So, the decision as per what I will invest in with $10,000 which should be upwards of N4m is simply; Real Estate. I will either do rental income property as part of a properly organized shared-ownership structure or speculate on land depending on how much time I have with the money. The reasons are very basic, real estate investments have been known to survive and surpass any and every challenge.”

READ: If you had $100,000 in cash, where would you invest it in US markets?

Darlington-Morsi Onyemaka, Co-founder Quba Exchange Forbes Accelerator Cohort ’20.

One of the main pointers to a good investment portfolio is diversified across multiple asset classes which should be according to the investor’s risk appetite. Looking at my long-term investment strategy, real estate fits in perfectly for Ten-thousand dollar investment. My portfolio is already jam-packed with high-risk assets and Real Estate will do a great job at hedging the risk factors without minimizing profitability in any significant way.”

READ: Foreign investment inflow into banking sector falls by 95% in Q2 2020

Francis Obasi Cofounder and CEO of Lead Wallet.

If I have a spare $10,000 right now for investment, first, I’ll invest 55% of the funds into new crypto startups being run by professionals and backed by companies like Coinlist; LID Protocol, and Binance. Second, I’ll invest 20% of the funds into Lead Token as there is still potential for massive growth in the coming months/years. Third, looking at the situation of Nigeria, and not knowing where the current protest (uprising) on #EndSARS is headed, I’ll reserve the rest 25% in USDC/USDT to hold against a potential Naira crash. I’m confident that there is every possibility that the Dollar will become scarce again in the coming weeks/months due to the ongoing protest, thereby returning instant gains for immediate spending on basic needs.”

READ: Ethereum robber transfers $1.5 million worth of Crypto

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Dapo-Thomas Opeoluwa Global Markets analyst and an Energy Trader.

“There are so many ways to invest $10,000. The real question depends on the investor. His risk appetite, his investment horizon, when does he or she want to liquidate? The answers to these now limit the options of investments. So for safe and long-term investments, I always advise investing in index funds, Eurobonds or the Nigeria International Debt fund. This is with the caveat that says ‘low risk equals low returns’. Also, I usually would say, invest in investments that beat inflation so you won’t suffer negative real turns.”

READ: Total, GTBank, Zenith Bank up, Bulls return to Nigerian Stock Market

Victoria Njimanze Investment Analyst at a Nigerian Investment Bank

Well, off my head I’ll go with Bonds, cryptocurrency, Stocks, and then alternatives.  I would definitely make my findings first, but I’ll make a larger portion go into Bonds say 40%, 30% in cryptocurrency, 20% in stocks, and 10% in alternatives like commodity market so as to have a diversified portfolio.”

READ: Cryptos: Nigerian financial experts talk risks associated with trading digital assets

READ: A mysterious Bitcoin Whale causes brief panic sell-offs at Bitcoin’s Market

Akinsola Esan, a credit risk analyst at Nigeria’s Tier 1 Bank.

Basically, the goal is to earn substantial returns on investments – dividends, capital appreciation, and secondly, beat inflation in naira which is currently about 12.85%. With $10,000, I’ll spread my investments across foreign equities such as purchasing and holding stocks of companies like Apple, Facebook, Google, Fastly, Nio, Amazon, to list but a few, and also buy some top-performing dollar-denominated Mutual funds such as Vantage dollar funds and some other ones recommended by Nairametrics. Lastly, I will look in the area of cryptocurrencies by investing as much in bitcoin, Ethereum, and other recognized Cryptos. There are some dividend-paying stocks listed on the Nigerian stock exchange as well, I will consider holding a number of them.

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Bottom line

Due to the present fickle nature of global financial markets, most financial experts interviewed above are unsurprisingly keen on mostly U.S dollar-dominated financial assets, thus reflecting the greenback’s dominance in demand amid the COVID-19  infection exploding at an alarming rate.

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