Key Highlights
- Nigerians have been slow to adopt newer investment vehicles like ETFs, cryptocurrencies, and stocks due to bad experiences with Ponzi schemes and a lack of awareness.
- There are various high-risk and low-risk asset classes available for investment in Nigeria, including stocks, mutual funds, ETFs, commodities, Treasury bills, and bonds.
- Before investing in Nigeria, it is important to conduct thorough research, determine your risk appetite, choose the asset classes you want to invest in, and select a reputable broker or investment platform to avoid falling prey to scams.
What comes to mind when you hear the word investments? For a good number of Nigerians, it is creating some sort of business, a warehouse distributing goods, buying some plots of land in developing areas, etc. Many Nigerians are yet to accept investing in assets like Gold, stocks, ETFs, cryptocurrencies, etc.
According to the Sun, since the introduction of ETFs in Nigeria in 2011, acceptance and participation by Nigerians have been very low.
Why are some Nigerians skeptical about taking advantage of these investment vehicles? Why do some Nigerians prefer traditional investments over other established investment vehicles? For some Nigerians, it is the bad PR that these “investments” have gotten.
For example, those people who “invested” in Ponzi schemes like MMM and Racksterli have had bad first experiences with investing. It would take a lot of convincing to make them see the reality and profitability of investing in stocks or cryptocurrencies for example.
While these are bad experiences, the onus is on those that fell prey to these schemes to pick themselves, learn more about investing, and make better investment choices.
A. Understanding the various asset classes.
High-risk assets
Stocks
Investing in stocks means buying shares of ownership in a public company. Those shares are called stock. If a stock you own becomes more valuable, you could earn a profit if you decide to sell it to another investor. A very simplified example is buying 20 units of stock of company ABC in January at N150 per share. In May, these shares have risen to N200 per share. If you decide to sell then, you have made profits of N50 per share which amounts to N1000 in total.
Mutual Funds
A mutual fund is an investment fund that pools money from many investors to purchase securities. Investing in mutual funds is less risky but the returns are not so juicy either. Mutual Funds like the Stanbic IBTC Dollar Fund promises
Exchange-traded fund ETF
An exchange-traded fund (ETF) is a type of pooled investment security that operates much like a mutual fund. For example, an ETF may consist of the top 20 pharmaceutical companies in Nigeria, and a rise in the pharmaceutical sector would see investors who put in their money making profits.
Commodities
This is simply buying commodities like Gold, Silver, Sugar, and Crude Oil in anticipation of higher prices. When the prices do increase, you can sell and make profits. Investing in commodities these days can be done from the comfort of your home and you don’t need baskets of groundnuts being delivered to your house. The assets are simply added to your portfolio and can be sold at any point.
Low-risk assets
Treasury bills
Treasury Bills, also known as T-Bills, are government-backed, short-term securities issued by the CBN. They are issued when the government needs to borrow funds for some time. They have a maximum maturity of 364 days. T-Bills are sold at a discount from their face value. Although similar to a short-term bond, t-bills are different and offer low yields compared to high-risk investments.
Bonds
Bonds are lower-risk and lower-return investments than stocks, which makes them an essential component of a balanced investment portfolio, especially for older or more conservative investors.
That being said, how does one get started in investing in Nigeria?
B. How to start investing in Nigeria
Do your research DYOR: A popular jargon in investing is DYOR. This is a way of telling prospective investors to do their diligence. Before you start your foray into investing, you need to do a considerable amount of research by yourself.
Understand the various asset classes, know what “ludicrous” returns sound like, and learn how to identify pyramid schemes. For example, if an investment program promises you say 40% ROI per month and encourages you to invite as many family members, co-workers, and friends as possible, then it is most likely a pyramid scheme. Robbing Peter to pay Paul.
Determine your risk appetite: Are you a risk taker? What is the highest amount of money you have lost? How did you feel about losing that amount of money? Can you lock your funds in an investment for a whole year and get just a meager 10%?
These are questions you should ask yourself to determine your risk appetite. Some people are risk takers and can lose amounts of money that would give others sleepless nights and not bulge about it.
For some, even a 3% reduction from their original investment can cause them heart palpitations. As a new investor, you need to understand yourself and know the amount of risk you are willing to take on.
Choose the asset classes you want to invest in: Asset classes are ways in which various assets are classified or grouped. For example, we have stocks, commodities, cryptocurrencies, ETFs, treasury bills, etc.
The stock market for example is speculating n the short and medium-term future of a company. If you predict that a company would do well in a certain period, you may bet on them by buying its stock.
Choosing the best broker or investment platform: Many investors have lost some or all of their principal by simply choosing the wrong brokers or platforms. Many shady brokers have closed down and vanished into thin air with investor funds.
Before depositing your hard-earned cash with these platforms it’s important to Do your research and land ook genuine reviews from existing customers. Look out for red flags and ditch shady options no matter how juicy their other offerings sound.
Will you encourage one to invest in banking.fixed deposits, savings account, treasury bills.