Investing for the Future: How well to go about it
Do you have some disposable income and are confused about what to do with it?
Do you have some decent savings which you intend to invest?
Did you just receive payment for a contract executed and you’re looking to invest the money?
Then, hear this:
There are a number of investment options out there, but you’ve got to know all the features as well as the merits and demerits of each of these options in order to take sound investment decisions.
A lot of people jump at investments with high return on investment without considering the associated risk and most of them end up having their fingers burnt.
Therefore, before you make that investment decision, please read this article carefully and consult your investment adviser (if you have one) for more insights.
As a Nigerian young person desirous of investing in the future, there are some viable investment options open to you. We are going to examine a few of them which we believe will suit your taste and circumstance.
The first passive investment option presented to anyone with some decent savings or windfalls or any other sizeable amount disposable income is fixed deposit. In fixed deposit, you put away some amount of money in the bank with an agreement not to call on such funds for a certain period of time, maybe 3 months, 6 months, 1 year etc.
Here, the bank trades with your money and pays you interest rates higher than the interest on normal savings account. Interest rates at the moment are anything between 5.2% and 6.8%, depending on the financial institution. However, you can negotiate for higher interest rates if you’re fixing larger sums.
Note that fixed deposit is a relatively low risk investment option with corresponding low rate of return. It is suitable for people who are saving for a future project with specific timelines. It is also suitable for parents saving for their children’s education as well as the elderly whose risk tolerance is very low.
Fixed deposit is by no means a get rich quick strategy neither is it a money doubling investment facility.
Federal Government Bonds and Treasury Bills
These are debt instruments issued by the Debt Management Office and Central Bank of Nigeria respectively to mobilize revenue for government projects or for deficit financing of government budgets. Here, the government regularly provides opportunity for the private sector as well as the ordinary Nigerians to lend to the government at fixed interest rates.
Treasury bills are about the safest investment option in the entire domestic debt market. In fact, it is absolutely risk free as the government will always pay as at when due and at the agreed interest rates. Treasury bills are issued by the Central bank of Nigeria and have maturity periods of 91 days, 182 days, 364 days etc.
Hence, Treasury bills are ideal for short term investments. At the moment, the interest rates on 91-Day maturing treasury bills are around 9% which means that your N1 million invested in treasury bills will yield additional N90,000 at maturity.
FGN Bonds are rather longer term money market instruments that have maturity periods of 5 years, 10 years, 20 years etc. For individuals, investment in FGN bonds are done through the secondary market windows as the issuer, that is, the Debt Management Office (DMO) deals directly with Primary Dealer Market Makers (PDMM) like commercial banks in what’s known as the primary market auction.
In any case, as you consider investing in the future, what you need to make a decision whether to invest in the bond market or buy treasury bills is the fact that treasury bills are a low interest and absolutely risk free investment option. Also, it is suitable for short term investment programmes.
Therefore, if you have some money to invest short term and are totally averse to risk, then, you might want to go for treasury bills. However, if you’re willing to invest long term and are looking for a zero risk investment option, then, investing in federal government bonds is the ideal option for you.
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