What can you invest in- Bonds (Fixed Income)

These are debt securities that pay a pre-determined rate of return on pre-determined dates and also promise to repay the principal at a pre-determined date.

You are pretty much giving out a loan just like a bank would do to a company or the government.

These are more risky than cash/cash equivalents, hence they offer higher returns particularly when it involves a corporate or a state government.

The investment options here include:

▶FGN Savings Bond – Medium term loans to the federal government of Nigeria. With tenures of 2 & 3 years. This has a minimum of N5,000 and is sold in the first full week of every month.

▶FGN Bond – Long term loan to the federal government. It can be as long as 20 years. You get your coupon (interest) every six months. This gets advertised in the newspapers.

Others include:

▶State/Municipal Bonds – Issued by state governments and local governments.

▶Corporate bonds – Issued by large companies.

▶Eurobonds – Dollar denominated bonds issued by the government or companies.

▶Supranational Bonds – Issued by multilateral organisations like the World bank, IFC.

These typically get snapped up by institutional and high net worth individuals, so you may not see this advertised. To know about these, you’d have to be on the mailing list of an investment bank, stockbroker and other closed groups. They typically would have a minimum threshold of about N5 million.

Some investment banks and fintech platforms also retail them.

What can you invest in -Cash & Near Cash Options

According to a 2018 report by UBS and Campden Wealth, the world’s super rich had 7 percent of their portfolio in cash and near cash instruments.

So even though the rates have dropped, you still need to have some of your money in this asset class, particularly your emergency savings.

Apart from making cash available for unforeseen events, it also makes some cash available to grab so fantastic opportunities.

In general, these are low risk investments with tenures of less than one year. As such the returns are quite low. However, it is possible to get higher returns if you are placing money with non-bank financial institutions or a microfinance bank.

The investment options here include:

Traditional savings account with a commercial bank – This have the lowest return and are insured by the government to a certain level.

Online savings account – They have much higher yields and offered mostly by fintech startups. They mostly do not have any form of deposit insurance except for those affiliated with commercial banks.

Fixed deposit account with a commercial bank – This is a termed deposit account and the rates are negotiable depending on the size of the fund and the duration of the deposit.

Fixed deposit account with a microfinance bank – Same as fixed deposits with commercial banks but offered by microfinance banks. As such, they are higher risk given that Mfbs give unsecured loans.

Treasury Bills – Short term loans to the federal government.

Commercial Paper – Short-term borrowing by the biggest private companies. With tenures of less than 1-year. This has a minimum of N5 Million.

You can invest in any of these directly or through money market fund.

If you want to change the world, start with mastering your finances

Many founders kill their businesses and ideas with bad personal finance habits.

They’ve got a great idea, built a solid team and actually execute excellently. But the business fails. Their business has barely got of the ground and their product is only starting to gain traction, but because they have the title CEO, they feel the need to look the part.

So they go off to buy a luxury SUV, move into a porshe area of town, start flying business class etc. And typically, they don’t do this out of their pocket, they’d expense this to the company.

A few years/months down the road, business slows down and their isn’t sufficient capital to tide the business through. And they are left with selling or shutting up shop.
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Dear founder, give that business some time to grow and flourish. You will not only fly business, you’d fly private if you so desire.

Of course as CEO, you represent your brand and shouldn’t go around looking tacky or in a a jalopy. That is however not sufficient grounds to blow cash you have raised from investors or revenue your business is only starting to generate.

Shifting from ‘Spaving’to Saving

Incredible 50% savings off a new ultraHD TV! Is it really saving, if you’ve just spent some money?

That’s not really savings but something called spavings – a combination of spending and saving. Spaving is spending money during a sales promotion to save money.

Savings in its true form is money set aside for future use and not necessarily money left unspent because of a discount.

But you can convert your spaving into savings by transferring the discount received into a savings account. Though in practice, it may not always be possible especially if you have a tight budget and immediately used the spavings to buy other essentials.
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So when next year’s Black Friday comes around, don’t say you saved a lot from discounts, the right word is I spaved a lot.

Make sure you both know the important stuff

I wonder how much money people have stuck in banks without anyone to claim it?

Whether you choose to manage your finances separately or combine everything or any other way you choose to deal with your family finances, you should share relevant financial information to avoid problems.

It’s common for couples to have one person handling the money but if the responsibility unexpectedly has to pass to the other person, it could be very challenging and lead to a major headache for the person now who has to deal with them.

Situations that require a spouse to take over the handling of family finances are quite stressful on their own, you don’t want them to deal with the additional issue of a financial difficulty – not because their is no money but they don’t know where it is or how to access it.

To make life easy for your partner, you need to get on the same page regarding the following among others:
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➡️Account details – how to access them.
➡️Properties and investments – What is owned and where they are held.
➡️Income sources – How much is coming in and from where.
➡️Household bills – When they become due and how to pay them.
➡️Amounts owed – How much and to whom it’s due.

You have high yielding investments but do you have cashflow?

What shall it profit a man or woman to have high yielding investments but zero cash flow?

So Tiwa is on her first job out of school and has just been paid a year end bonus. She’s all about saving and investing, so when she hears of how land prices in Lekki have jumped for the early invesors, she makes a quick move to purchase some real estate.

Some months down the line, the investment is doing very well but she has an emergency and needs some cash that exceeds her emergency savings.

Unfortunately, investments in bare land don’t pay any dividend. The only way to get cash is to either sell it, lease it or do some business on the land. Now, those aren’t things that can often be done at the snap of a finger.

Also, it should be noted that she only needs some money but it isn’t easy to sell a fraction of a piece of land.

So with no cash flow from her investments, she has a crisis situation and may have to take a high interest loan, sell the land at a huge discount or more embarrassingly go begging.

Often, investments with the highest rate of return would require you to tie up your funds for a long time. And while it’s important to maximise your returns, you need to also have some investments that generate some cash flow.

Thoughts on saving money with a piggy bank or kolo box

Once again, people are breaking there kolo to find decent sums.

Last year, I thought it was throwing money away in unearned interest. If you put 1,000 into the box daily, you’d have at most 365,000 at the end of the year.

If you were putting the 1,000 into a high yield savings account (10% per annum, compounding daily), you could have additional savings of up to 18,000. Today, rates aren’t that high, maybe you get additional 7,000.

Anyway, I think it’s an interesting practice because it’s lose change that ends up in this box, that you’d probably spend some way or the other. Besides, It’s not like you’d withdraw from your account to put money in your kolo. So, there is perhaps a place for it in the overall scheme of things.

I however think, you don’t need to wait until December to get the cash out. Every month or quarter, get the cash out and let it earn some interest.

Are you using or have you used a piggy bank to save lose cash and what was your experience like?

Simplify your finances to get ahead

Managing your money can be complicated (even if you have a little), but it becomes easier to control if you simplify the process.

Steps to simplify your finances –

  1. Consolidate your accounts – It’s not uncommon for people to have multiple bank and investment accounts. Apart from avoiding the payment of multiple bank charges, streamlining the accounts would make them easier to track.
  2. Automate your payments and investments – With direct debits from your accounts for these, that’s something less to worry about.
  3. Use technology – There are apps you can use for budgeting as well as fintech platforms you can use to save and invest in multiple asset classes.

Other ideas:

  • Eliminate paper statements.
  • Consolidate your debts, if possible.

Tighten your belts – Keeping it together in a tough economy

You are not a ‘marlian’, so you better tighten your belt, the government is coming for a bigger share of your wallet.

This is what’s happening –

VAT – As we all know, this is going to 7.5% from 5%

Electricity Tariff – Tariffs are going up by about 78% in April.

Petrol – Has been stable but with pressure on government finance they could adjust that upward.

Inflation – This has been trending upwards. And as we all know with a higher minimum wage, things could get more expensive.

And to make it worse, income from Treasury Bills has slumped.

So we all have to tighten our belts. And if you don’t wear belts, tighten whatever it is you wear.

Dividends: Why you should take notice

Before you close your mind to Nigerian stocks, you should read this…
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By the way, the market has been steroids since the start of the year. We predicted this would happen when treasury bill crashed last year.

Anyway, to this dividend matter.

If you’ve been following the price of quoted securities for some time now, the graph is more downwards. And because of that, most people don’t like to touch stocks even with a pole.

However if you take a closer look at how these stocks have performed when you factor dividend reinvestment, the picture is a lot different.

Hopefully, you already know about the magic of compounding.

Unlike your fixed income where you can just leave an instruction for your investment to be rolled over at maturity, with stocks you have to make the active decision to reinvest your dividends.
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Need further guidance on how to retrieve your dividends, send us an email – info@thriveng.org

Source: Bloomberg