For most people, saving N1 a day is not enough on its own to make them rich. But the fact that you can end up with tens of thousands or even hundreds of thousands or millions of naira from an investment of N1 per day just shows the power of a little consistent effort.
“The first rule of investing is not to lose (money). And the second rule of investing is don’t forget the first rule,” Warren Buffett once said.
Nigeria’s business environment is plagued by foreign exchange liquidity problems, insecurity, political flip-flops, weaker pockets of consumption and lack of infrastructure, which discourage capital commitments long-term.
Basically, there are three main investment instruments: stocks, money market and fixed income securities.
Before investing in stocks, bonds, treasury bills (T-Bills), exchange-traded funds, currencies, and even cryptocurrencies, you should consider your investment objective, tolerance at risk, your source of funds and your age.
Lizzie Kings-Wali, Managing Director of Blackstone Capital Limited, said: “The equity market is likely to see a bumpy ride throughout the election cycle, especially as fixed income yields rise and the naira becomes more volatile.
“You may have noticed the steady rise in yield in the fixed income environment, including the primary market, where even the yield on FGN savings bonds has steadily climbed above 9% for the note. three years.”
According to her, Eurobond funds are a good option for those looking to hedge currency risk from Naira volatility and gain exposure to a rising yield environment.
“Although, for those who are not afraid to take the risk of the equity market, I would suggest that they target buying when it goes down, especially the value meters in the banking sector, which I think should know the most volatility and portend the highest upside potential, as banks (especially Tier 1 names) stand to benefit from naira depreciation and rising rates,” Kings-Wali said.
Yinka Abenuwagun, Investment Analyst at Value Alliance Asset Management, said: “Investing is not easy for everyone as each portfolio is created based on an investor’s risk appetite.
“For someone with a high risk appetite, 25-50% of the million naira can be invested in equities, 20% in money market (commercial paper, treasury bills) and 30% in bonds ( example, corporate bonds).”
He advised investors with a low appetite for risk to put 10% in equities, 85% in fixed income securities because they are the most stable and 5% in bonds.
Abenuwagun said: “For medium risk investors – these are people willing to take a bit of risk but not as much as high risk ones, 30% of the capital can go to stocks, 30% to bonds and 40% to the market. monetary. (20% in high yield fixed deposit and 20% in commercial paper).
“The market is a cycle that goes up and down; we are at the point where the market could turn lower as election time approaches. Currency issues and macro issues will negatively impact the equity market for the rest of the year; so entering now could be a bad time for a low-risk investor.
“Real estate is a very volatile industry due to the uncertainty that comes with real estate, but there are different investments that come with real estate, such as the Real Estate Investment Trust Fund. There is not enough capital to buy a property because it requires huge capital.
According to Sola Oni, a licensed stockbroker, there are warning signs that every investor should pay attention to in order to avoid avoidable risks.
He said: “That explains why some investors often smile at their banks regardless of the market mood, while others have endless fasts and prayers for losing money on a daily basis.
“It is established in financial management that there is no investment without elements of risk. Government bonds, called gilt edge and crowned risk-free, are only theoretical. Although the level of risk is significantly low compared to common stocks, this does not entirely eliminate the risks.
According to Oni, a government bond, with all its advantages, is subject to inflation risk, interest rate risk, and opportunity cost risk, among others.
He said: “But the risks are more pronounced in corporate bonds, the most important of which are default and liquidity risks. While default risk refers to the possibility that the company may not be able to repay the principal of the bond when due, liquidity risk is a lack of demand for the bond when the holder is ready. for sale.
“There are key issues that every investor should watch out for, before buying or selling stocks. They are usually referred to as red flags. Every investment decision is impacted by red flags and not doing it. attention can turn a profitable investment into a simple game of chance.
Oni said the management of a business should be looked at before investing in such an organization.
He said: “For example, an all-time investment game-changer, Warren Buffett, will never buy shares of a company whose management lacks integrity, skills and competence.
“Before an investor buys shares of a company, he should study the earnings trend. Shrinking profit margins and slowing sales growth are signals that the company’s business model is likely failing. The share price of such a company is vulnerable to volatility. Let me quickly add that volatility is a part of all stock markets. But understanding how to play with it separates the men from the boys in the art and science of investing.
Nigeria’s Monetary Policy Committee recently raised the policy rate by 150 basis points to 13%, in line with the hawkish policy adopted by policymakers in both developed and emerging markets to fight inflation and increase the attractiveness of securities local. Nigeria’s inflation rate in April rose to 16.82% from 15.92% in March.
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In the Nigerian stock market, bearish sentiment prevailed in the week ended June 3, with the All-Share Index down 2.18% week-on-week to 52,908.24 points; while the year-to-date return decreased to +23.86%. On a sectoral basis, sentiment was broadly negative, with all indices except NGX Insurance posting a weekly loss. In addition, sentiment in the secondary market for fixed income securities was mixed, with the average Treasury bill yield rising 11 basis points to 4.69%, while bond yields fell 6 basis points to 4.69%. 11.16%.
Nigeria’s GDP grew 3.1% year-on-year in the first quarter of 2022, compared to 3.9% in the fourth quarter of 2021.
“Looking ahead, the Central Bank of Nigeria expects steady GDP growth, albeit at a subdued pace, due to the headwinds associated with the domestic and external shocks unfolding on the economy. These headwinds include the effects of the ongoing Russian-Ukrainian crisis as well as ongoing supply chain disruptions on major trade routes.In addition, China is facing the spread of COVID-19, and its zero-COVID policy is leading to lockdown total manufacturing centres/cities,” Chinwe Egwim, chief economist at the Lagos-based Coronation Merchant Bank, said in a recent economic brief.
“We expect the hawkish tone to cause significant disruption across all asset classes. We see the possibility of a spike in money and bond market yields in the months ahead. a negative equity market reaction as investors sell their equity exposures in response to rising yields.However, we expect companies with strong earnings performance in the first half of 2022 to remain attractive to investors, in particularly in July,” United Capital research analysts said in their May 25 note.
United Capital analysts said last week that despite the MPC’s rate hike, “which ideally makes the fixed income space more attractive to local and foreign investors, Nigeria’s protracted currency crisis continues to dissuade foreign investors from entering the Nigerian capital market, raising concerns about foreign portfolio investment inflows.
“Furthermore, the risks associated with the political environment ahead of the 2023 general election outweigh the benefits of rising rates,” they added.