Invest Your Savings Wisely: A Guide For Nigerians

There are many ways to invest your savings in Nigeria, from low-risk, long-term investments to higher-risk, short-term investments. Here are some of the most common and popular methods:

- Bank Deposits: One of the oldest forms of investment, bank deposits are a safe, low-risk option. You can choose between short-term savings deposits, which offer low interest rates but allow for flexible withdrawals, or fixed deposits, which offer higher interest rates but require a long-term commitment.

- Federal Government of Nigeria (FGN) Savings Bonds: These bonds are issued by the Nigerian government and are a good option for those seeking low-risk investments. They offer tax-free interest rates that are typically higher than those of regular savings accounts, and they can also be used as collateral for loans.

- Mutual Funds: Mutual funds are ideal for those who don't have the time or expertise to invest in the stock market. They pool money from multiple investors to invest in a diverse range of securities, such as stocks, bonds, and money market instruments. This helps reduce risk and provides access to professionally managed portfolios.

- Treasury Bills: Treasury bills are short-term, low-risk investments issued by the Nigerian government through the Central Bank. They are considered one of the safest investment options as they are backed by the government and offer guaranteed returns.

- Real Estate: Real estate is a traditional investment option that tends to appreciate over time. While it may require a larger capital outlay, it can provide steady cash flow and long-term financial gains.

- Stocks: Investing in stocks allows you to buy shares of publicly listed companies, such as MTN, Nestle, and Dangote Cement, on the Nigerian Stock Exchange. It offers the potential for capital appreciation, dividend payments, and bonus issues.

- Online Investment Apps: There are several investment apps available in Nigeria, such as CowryWise, PiggyVest, and Wealth.ng, that offer a convenient and flexible way to invest in various portfolios, including stocks, bonds, mutual funds, and the agricultural sector.

Invest in the Nigerian stock exchange

The Nigerian Stock Exchange (NSE) is a good option to consider when looking for where to invest your money in Nigeria.

A stock is a type of investment that represents an ownership share in a company. Investors buy stocks that they think will go up in value over time.

In simple terms, a stock exchange is a market where buyers and sellers meet to trade stocks. There are different stock exchanges for different countries, for example, the New York Stock Exchange, the Tokyo Stock Exchange, and the London Stock Exchange.

• Research and decide on a preferred stockbroker: A stockbroker is an appointed agent authorised to execute, buy or sell instructions on an investor's account. Within the Nigerian stock market, a stockbroker refers to a broker-dealer firm that is a dealing member of the NSE and is registered with the SEC. When deciding on a stockbroker, consider their ease of access, affordability, integrity/reputation, and their status with the NSE/SEC.
• Open an account on the CSCS (Central Securities Clearing System): To participate in the NSE, all investors must be registered on the CSCS. CSCS Ltd is an associate company of the NSE. The system is an electronic database that records ownership of Nigerian securities. On registration, the system assigns you an account number that will accompany every Nigerian stock trade you execute.
• Fund your account and trade: Your stockbroker will provide their bank account details and fund your account once any payment you make is confirmed. Investors trade on the floor of the exchange only through stockbrokers. Trade instructions issued by investors are received by stockbrokers either by traditional order papers or from online trading platforms.
• Collect benefits on your investments: There are three ways through which investors make money: dividends, capital appreciation (rise in price of a share) and bonus shares. Most companies pay a final dividend at the end of the financial year, while some others pay an interim dividend halfway through the year. Paying dividends to shareholders is not compulsory. When profits soar, a company can decide to reinvest part of this profit to create new shares and then reward shareholders with these extra shares as a bonus. As a shareholder, you can decide to retain your bonus shares or sell them, converting them to cash.
• Reinvest or recreate: This is the step where you decide to reinvest your earnings or do something recreational with them.

Advantages of investing in the Nigerian Stock Exchange:

• Protection against inflation: Over the years, ordinary shares are said to have won the battle against inflation rates, providing enough returns and growth.
• Ease of access: Updates and innovations in technology, especially in the area of Fintech, make it easy to access stock exchange investment platforms and seamlessly make your investment.
• Diversification: Purchasing stocks of companies operating in different sectors and segments is possible, which helps optimise asset allocation and provides diversification.

Buying stocks from the NSE involves some technicalities. For you to safely invest in stocks in Nigeria, you need the advice and assistance of a stockbroker. A stockbroker is a professional who executes buy and sell orders for stocks and other securities on behalf of clients. A stockbroker may also be known as a registered representative, investment adviser, or simply a broker. They work with a stockbroking firm, and these professionals can give you the needed guidance in investing in stocks.

When you invest your money in stocks, you can earn in three ways:

• Capital appreciation: This has to do with an increase in the price of shares. When this happens, you can sell your stocks and profit from it.
• Dividends: Companies have different dividend policies. However, what you should be concerned with is how much dividend a company pays per share relative to the market price per share of the company. That is what is called dividend yield.
• Bonus issues: Companies also give bonus issues to their shareholders. Bonus issues are when a company agrees to give out additional shares to its shareholders for free. That means the shareholders don't have to pay from their pocket, and they get additional shares on top of the ones they already bought from the company.

With as little as N5,000, you can start investing in stocks.

As with any investment, there are risks involved. The value of stocks can go down as well as up, and there is the risk of losing your money if the company whose stock you own performs poorly. It is important to do your research and understand the risks involved before investing.

Invest in fixed deposits

Fixed deposits are a great investment option for Nigerians seeking low-risk, long-term financial goals. This investment option is available at all banks in Nigeria, albeit at varying rates.

Fixed deposits are a type of investment where you deposit a specific amount of money for a fixed period, at an agreed interest rate. The investment period typically ranges from 30 to 360 days, and you can choose the duration that best suits your needs. The minimum opening balance for this investment is N100,000, and you can terminate the investment before maturity if needed. However, if you withdraw your money early, you will be penalised by forfeiting a portion of the accrued interest.

Fixed deposits offer several advantages over other investment options. Firstly, they provide a guaranteed return with very low risks compared to the stock market. The returns are also generally higher than those of a regular savings account, and the interest rates are highly negotiable. Additionally, fixed deposits are very flexible and convenient, allowing you to choose the maturity period and the amount you wish to invest. This makes it an excellent option for those who cannot invest heavily in other options like real estate.

To open a fixed deposit account, you will need to provide the bank with a passport photograph, proof of identification, and a copy of a recent receipt from any public utility. If you are a foreign account holder, you will also need to provide a copy of your residence or work permit.

Fixed deposits are an excellent option for Nigerians seeking a stable and secure investment with low risk. The flexibility of the investment period and the guaranteed returns make it a popular choice for those looking to grow their savings over time.

Invest in mutual funds

Mutual funds are a great way to invest your savings in Nigeria. They are a type of financial vehicle made up of a pool of money collected from many investors, which is then invested in securities such as stocks, bonds, money market instruments, and other assets. Mutual funds are operated by professional fund managers who invest the pooled capital and attempt to produce capital gains and income for the fund's investors.

Mutual funds allow investors to buy units of the funds, with each unit purchased representing partial ownership of the fund and any potential returns. The funds are overseen by experts known as fund managers, who are fully accredited by the Securities and Exchange Commission (SEC) in Nigeria.

There are different types of mutual funds to choose from, including Equity Funds (also known as Stock Funds), Shariah Compliant funds, and Infrastructure Funds.

Benefits of Mutual Funds

Diversification

Mutual funds allow investors to diversify their portfolios by investing in different kinds of stocks or bonds. This reduces the risk associated with investment, as if one instrument isn't profitable, the others will compensate.

Expert Fund Management

Your funds are managed by experienced and professional fund managers, who devise strategies, research potential investments, make trades, and monitor the performance of the mutual fund.

Low Cost

Mutual funds are relatively affordable and convenient for retail investors. They provide investors with the opportunity to invest in a wide array of stocks or bonds at limited or no transaction fees.

Dividends/Returns

Most mutual funds pay dividends to investors periodically, and these are shared in proportion to the investor's unit holdings in the mutual funds.

Factors to Consider Before Investing in Mutual Funds

Risk Appetite

It is vital to consider your appetite for risk before investing in mutual funds, as this will guide you in selecting funds with assets and strategies that fit your profile. Assets are classified based on their risk levels, with conservative funds having low-risk assets and aggressive funds having high-risk assets.

Payment of Dividends/Profit

Consider when the fund pays dividends or profits, as this should match your investment goals. Most funds also offer the opportunity for dividend reinvestment.

Investment Goals

Define the goals you wish to attain with your mutual fund investments. For example, do you intend to use it for your children's education or as retirement savings?

Investment Period

Consider how long you wish to keep your investment in the mutual fund. Most mutual funds are liquid, allowing you to redeem your investments easily. However, some funds require you to keep your investment for a minimum holding period, which can range from 30 to 180 days.

Examples of Mutual Funds in Nigeria

• Stanbic IBTC Equity Fund
• United Capital Balanced Fund
• FBN Money Market Fund
• United Capital Money Market Fund
• Stanbic IBTC Money Market Fund
• ARM Money Market Fund
• Cordros Money Market Fund
• Coronation Money Market Fund

Invest in real estate

Real estate investment is a lucrative option for investors worldwide, and the Nigerian real estate market is one of the fastest-growing in Africa. Here are some ways to invest in real estate in Nigeria:

Rental Properties

This is a popular investment option in the Nigerian real estate market. Investors purchase properties and rent them out to tenants, earning rental income and capital appreciation over time. When investing in rental properties, it's important to ensure that the rent covers other expenses associated with owning a rental property.

Commercial Real Estate

Commercial real estate includes office buildings, retail spaces, and other properties that generate income from business activities. Investing in commercial real estate typically requires a significant amount of capital and expertise. Investors can purchase properties outright or invest in real estate investment trusts (REITs) that own commercial properties.

Real Estate Investment Trusts (REITs)

REITs are companies that own and operate income-generating real estate properties. By investing in a REIT, individuals can earn dividends from real estate without directly buying, managing, or financing properties. REITs offer investors exposure to the real estate market with less capital and provide liquidity as shares can be traded like stocks.

Real Estate Crowdfunding

Real estate crowdfunding involves a group of investors pooling their resources to invest in a real estate project. Investors can use online crowdfunding platforms to choose specific projects, making it easy to diversify their investment portfolios. Real estate crowdfunding allows investors to participate in real estate projects with smaller capital requirements.

Real Estate Development

Real estate development involves purchasing a plot of land and developing it into a property. This requires significant capital and expertise in real estate development, including the ability to manage a project from start to finish. Real estate development can provide significant returns, especially in high-demand areas.

Buy and Hold Strategy

The buy-and-hold strategy involves purchasing a real estate property and holding onto it for an extended period. Investors can rent out the property to earn rental income and benefit from capital gains as the property appreciates in value over time.

Joint Venture Investing

Joint venture investing involves partnering with another investor to invest in a real estate project. It allows investors to share the capital requirements, expertise, risk, and reward of a project. Joint venture investing provides access to larger and more complex real estate projects.

Direct Property Purchase

You can buy a property to rent out or live in. In Nigeria, you can pay for a property with a mortgage or a personal loan, with different options depending on your income. While buying property can provide regular income through rent and potential for capital appreciation, there are also risks, such as market changes, property value loss, and challenges with property management and tenants.

Property Flipping

Property flipping involves purchasing real estate at a low price, renovating or repairing it, and then selling it at a higher price for profit. Successful property flipping requires a good understanding of the real estate market, property values, and renovation costs. While it offers the potential for quick and significant profits, there are also risks, including unexpected costs and market downturns.

Residential Development

Residential development involves purchasing land and constructing housing units to sell or rent. Developers can create various residential environments, from single-family homes to multi-unit apartment buildings. This process includes land acquisition, planning, obtaining permits, construction, and then selling or leasing the finished units. Residential development offers significant profit potential but also carries high capital requirements and longer development periods, increasing exposure to market risks.

Agricultural Land Investment

Investing in agricultural land involves purchasing property used for farming or agribusiness activities. Investors can lease the land to farmers or engage directly in agricultural production, tapping into the growing demand for food and agricultural products in Nigeria. Agricultural land investment offers steady income potential and the possibility of capital appreciation as land values increase. However, it is subject to environmental and market risks, such as weather conditions, pests, and fluctuating market prices.

Invest in your business

Investing in your business is a great way to make your money work for you and achieve financial freedom. It is one of the best investment options in Nigeria, especially for those with limited knowledge of the stock market or who are averse to risk.

With as little as 100k, you can start a profitable business that has great growth potential and steady cash flow.

• Conduct thorough market research before starting your business. Understand the industry, your target market, and your competitors.
• Develop a solid business plan. Clearly define your business goals, target audience, marketing strategies, and financial projections.
• Build a strong network of mentors, partners, and clients who can support and guide you in your entrepreneurial journey.
• Utilize digital tools and platforms to reach a wider audience and promote your business effectively. Social media, for example, is a powerful tool for connecting with potential customers and creating a community around your brand.
• Consider investing in multiple income streams within your business to diversify your offerings and reduce risk. For example, you could offer complementary products or services or explore different distribution channels.
• Keep abreast of industry trends and developments to stay ahead of the competition and adapt to changing market demands.
• Practice good financial management. Separate your personal and business finances, maintain accurate financial records, and regularly review your financial statements to make informed decisions about investing your money back into the business.
• Build a strong team by hiring talented individuals who share your vision and can contribute their unique skills and perspectives.
• Focus on providing excellent customer service to build a positive reputation and encourage customer loyalty.
• Continuously evaluate and improve your business processes to increase efficiency, reduce costs, and enhance the overall customer experience.

Remember, investing in your business requires a long-term commitment and a willingness to adapt and persevere through challenges. By following these steps and adopting a growth mindset, you'll be well on your way to building a successful and profitable venture.

Frequently asked questions