In Nigeria’s current economic situation, allowing money to remain idle is a luxury few can afford.
From equities to fixed income securities and alternative asset classes, here’s a closer look at recommendations for maximising returns on N1 million.
Broadly, there are three major investible instruments: equity, money market, and fixed-income securities.
You must consider your investment objective, risk tolerance and source of funds, and age
before investing in stocks, bonds, Treasury bills (T-Bills), exchange-traded funds, foreign exchange, and even cryptocurrency.
A Lagos-based portfolio manager highlighted this saying to invest that amount, the investment objective of the investor, the risk tolerance and the financial goal should be considered, whether this investor is seeking capital appreciation or preservation.
She said the risk appetite of the person will determine the person’s investment choice also factoring in the present market climate.
On Tuesday the Nigerian stock market’s All Share Index (ASI) crossed 60,000 psychological points pushing the market’s year-to-date (YtD) positive return to +17.28 percent.
Since the unification of Nigeria’s foreign exchange rates, the stock market has seen positive results and a boost in investors’ confidence.
“For a risk taker due to the rally in the stock market, they will likely apportion a bigger chunk to the stock market (N600,000) and then the remaining N400,000 can go to the money market like Commercial papers. But right now the fixed-income market isn’t currently giving good rates, so banks aren’t willing to collect money. Of the N400,000 they might give just 2 percent,” she said.
She advised that a risk-averse individual can tend towards the fixed-income market because they are safer securities.
“In the present market environment it is advisable to invest a bigger chunk to equities and some to fixed income markets and a tiny bit to alternative asset classes,” she said
A money market mutual fund is a pool of funds invested into different securities and interest is paid on it quarterly.
She mentioned that there are other instruments like mutual funds available at any asset management firm.
“There is also a balanced fund that cuts across various instruments, this fund enables you to invest in all instruments at once so your 1 million is apportioned to each instrument like it is in the fund and you get a set interest, typically stocks comprising about 70 percent of a balanced fund and the rest are bonds,” she said.
Another Lagos-based portfolio manager at an asset management firm said he believes we are gradually ushering into a low-interest rate environment.
“Typically this is when you see the equity market attracting more interest from investors. The convergence of the exchange window has also increased FPI in that space,” he said.
He said that the investment instrument selected is dependent on the risk appetite of the investor,
“I can recommend as high as 70 percent exposure to few fundamentals stock (however for risk-averse investors, you can reduce your risk by investing in a balanced fund as opposed to a direct exposure) the 30 percent can be put in bond mutual funds (as the balance N300,000 cannot get you a direct exposure to bond),” he said.
Gbolahan Ologunro, portfolio manager at investment banking and asset management firm FBNQuest said, “Within a portfolio context, I would recommend skewing the asset allocation towards stocks given medium-term expectations of improved macro outcomes underpinned by ongoing structural reforms.”
However, I think stock selection would be overly concentrated in banking stocks given that they are best positioned in navigating the immediate negative impact of the ongoing reforms by the new administration, he said.
He mentioned that consumer goods companies are also lucrative stock options.
“Companies in the consumer goods space whose products are price inelastic also offer attractive risk/return profiles given their ability in preserving earnings by passing the cost to consumers in the form of higher prices,” he said.
For the fixed-income market, He recommends a short-duration strategy with active trading activities on the mid to the long end of the curve based on liquidity conditions in the financial system.
“Though the downward movement in yields on the mid to long end is inconsistent with fundamental factors, this will likely persist in the near term if liquidity surfeit remains supportive. As a result, staying too short could undermine trading gains within the FI portfolio. Against this backdrop, the mid to long end bellies opportunities for active traders who can properly time entry and exit positions based on the evolution of liquidity within the system,” he said.
Tosin Osunkoya, co-managing partner and CEO, Comercio Partners Asset Management advised to grow the amount significantly with a fixed-income asset class before diversifying into other asset classes.
“In the current dispensation with inflationary pressure, it’s really difficult to spread N1 million across several investment tools. My professional advice would be to start building that N1 million in a credible savings/investment platform that guarantees a fixed return and then build it up to N10 million. Then you can start thinking of spreading,” he said
Solafunmi Sosanya, personal finance consultant and founder Wealth Motley give a more generic approach to investing a N1 million, spreading it evenly across five different instruments both in Nigeria and American markets.
“First you put N200,000 into VOO an ETF that covers the top 500 companies in America, another N200,000 in VGT that covers tech companies in America, the third N200,000 can be invested in Kebble which is a platform that focuses on buying fractional real estate shares put another N200,000 high savings account like Piggyvest to get a 10 percent interest, another N200,000 in Risevest fixed income with at least 10 percent interest annually,” she said.