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Investment To Consider For A Decent Return In Nigeria

Nigeria instruments offers a diverse range of financial products. Investors should not focus solely on the with the largest return potential. Before choosing an instrument, each element of risk associated with the investment goal must be considered.

Starman by Starman
October 12, 2021
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Saving is merely the first step on the road to financial independence. It is critical to pay attention to how you manage your savings.

You are exposing your savings to a high risk of inflation if you retain them in cash. Your money’s value would deteriorate over time. You must invest your savings in order to maintain their purchasing power and to enhance their worth over time. Good investment results come with a variety of risk concerns.

The bulk of novices to the investment industry look for products that offer the best returns while posing the least risk. Choosing an investment strategy, on the other hand, is not so straightforward. To succeed in the investment sector, you must have a thorough understanding of the various investment options.

Each investment tool has its own set of risks and is best suited to different sorts of investors. When choosing an investment tool take into account your risk appetite, investment horizon, and financial goals.

To aid ordinary investors, we have separated and discussed the various investment vehicles accessible in Nigeria.

Low-risk investment opportunities

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Low-risk Investment instruments are products that give consistent returns over time with little or no volatility.

Market trends have little impact on returns, but they can occasionally fall below the rate of inflation.

Issuing Debt

Entities can raise capital by issuing debt, bonds, or fixed-income instruments. Governments, banks, and corporations are examples of such entities. The bond is sold by the issuer, who guarantees to repay the principal and interest after a specified period of time.

Payments can also be made by the issuer in the form of coupons, which are payments made at predetermined intervals. The repayment is made at the end of the term in zero coupon bonds. Before purchasing a bond, make sure to check the interest rates, coupon, tenure, credit ratings, and conditions.

The term “default” refers to when the issuer fails to repay the promised amount. When compared to corporate-issued bonds, bonds issued by the Federal and State governments have a lower risk of default. Government bonds, on the other hand, have strong credit ratings but offer lower returns than business bonds.

Nigerian investors can look up the information of available bonds and invest through any of the dealers on the FMDQ (Financial Markets Dealers Quotations) OTC (Over-The-Counter) Trading Platform or the Nigerian Stock Exchange.

Another form of investment is FDs (Fixed Deposits)

Another low-risk way of investment is fixed and regular deposits. A predetermined sum is placed in licensed banks, which pay interest on the principal.

Annual interest rates vary according on the bank. Fixed Deposits, for example, are offered by banks in Nigeria at rates ranging from 6% to 14%. Interest rates are determined by the amount deposited, and the time period for higher rates is usually longer.

You can inquire about details and fixed deposit options directly with your bank.

Where Should You Put Your Money for a Good Return Over a medium Period of Time?

The following options can help you earn somewhat higher returns than fixed income securities over the medium to long term.

For at least a three-year duration, these instruments will traditionally produce higher returns. They do, however, come with increased risks.

Investing in Stocks

Stocks are the most prevalent kind of investing, and they allow you to buy and sell shares in a publicly traded corporation. When you buy stock in a company, you become a part-owner, and the value of your stock fluctuates with the firm’s growth and decline.

Any of the NGX’s (Nigeria Exchange Group) licensed brokers can help investors purchase and sell shares in a listed firm. On the Nigerian Stock Exchange, there are currently 155 businesses listed. Each broker has his own set of features and can charge a separate brokerage fee for each service they provide.

Over the medium to long term, stock investments can yield great profits, but they are risky. Before making an investment, investors must conduct extensive research and analysis of the stocks.

Investing in Mutual Funds

Mutual funds are pooled investment vehicles in which a group of participants pool their money to invest in traditional assets such as stocks, bonds, and other securities.

These are appropriate for passive investors who do not have a thorough understanding of the stock market or other markets but nevertheless want to invest.

Actively Managed Mutual Funds have higher fees since they are managed by a professional Fund Manager. However, a Fund Manager does not actively manage the Exchange Traded Funds (ETFs) or the Passively Managed Mutual Funds.

Mutual funds licensed by the Securities and Exchange Commission (SEC) are available to Nigerian investors. A Systematic Investment Plan (SIP) or a lump sum investment can be made on a regular basis.

Each fund has a unique risk factor, portfolio, and return objective, among other things. Before choosing a fund, investors should examine its suitability. Most funds publish their historical performance, which you can review before investing.

The following investment option are for the experienced investors and traders, since it is a high-risk, but offers high-return

Short-term investors most often assume bigger risks in order to attain their goals.

Instruments that meet these requirements are considered dangerous and should only be used by experienced investors. These are instruments that beginners should stay away from.

Trading is a high-risk strategy of profiting from capital markets by buying and selling securities on a short-term basis.

Investing in Derivatives

Short-term investment tools with significant risk are Derivative instruments. Traditional capital markets, such as stocks, indices and commodities, to name a few, provide the basis for these products’ value.

The most popular derivative instruments are futures and options. These are contracts that offer the buyer and seller the right and duty to acquire and sell underlying securities before the contract’s expiration date.

Derivative instruments carry a high level of risk and should only be used by experienced/professional traders.

Foreign Exchange trading

Buying and selling one currency for another is referred to as forex or foreign exchange. Traders typically deal in currencies such as the EUR/USD, GBP/USD, and others.

Forex trading online is not yet regulated in Nigeria, but it is not prohibited. Nigeria has the biggest number of forex dealers in Africa, estimated at over 200,000.

Foreign forex brokers that allow Nigerian traders are regulated and licensed by foreign regulatory authorities such as the FCA in the United Kingdom and the FSCA in South Africa. In Nigeria, no forex brokers are regulated/licensed by the Central Bank of Nigeria or the Securities and Exchange Commission (SEC).

Currency pairings are exchanged in lots, with each lot representing 100,000 units of the respective currency. Forex brokers provide leverage, allowing retail traders to trade larger positions but also exposing them to very high risks.

The currency market is open across the world 24 hours a day, 5 days a week (Mondays to Fridays). Currency pair price movements can occur for a variety of causes that are difficult to forecast. To get adequate expertise, new traders are encouraged to trade forex using demo accounts rather than real money.

Trading in Contracts for Difference (CFDs)

CFDs are a sort of derivative market in which only the price movement of the underlying securities is bet on. CFDs on currency, indices, commodities, stocks, cryptocurrencies, and other assets are available to traders.

In Nigeria, there are currently no licensed/regulated CFD brokers for retail traders. Nigerian traders use overseas authorized brokers to trade these instruments.

CFDs make it possible to trade instruments that would otherwise be unavailable to ordinary Nigerian investors. With leverage, you can start a larger position with a smaller deposit. However, it is not suitable for beginner traders.

Because of the high level ofrisk involved, it may not be suitable for cautious investors and traders.

Nigeria instruments offers a diverse range of financial products. Investors should not focus solely on the with the largest return potential. Before choosing an instrument, each element of risk associated with the investment goal must be considered.

For financial decisions, investors should not rely on recommendations from friends or family. Investors must tune out the distractions and devote their time and energy to learn about capital markets that are appropriate for them.

 

 

 

 

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