Passive investing are investments made by people who do not engage in the day-to-day rigor and control of investing.
It’s essentially making your money work for you while you focus on doing other things that feed your source of capital. Most middle class and upper class Nigerians fall into this category.
However, the last three years have been very difficult for the emerging economies of Africa, particularly sub-Saharan African countries such as Nigeria and Ghana. The Covid-19 pandemic caused a flight of foreign investors from Nigeria and other emerging markets, triggering a currency crisis that saw the Naira-US dollar exchange rate fall by more than 50% since the beginning of 2020.
This has made passive investing really unattractive and seemingly less lucrative, mainly because people are afraid of losing their money. Despite these concerns, passive investment opportunities exist in an environment associated with high inflation rates, depreciated exchange rates, and other macroeconomic challenges.
Investors with an appetite for risk often take advantage of weak economic environments to make investment decisions that generate massive returns. Others, who are risk averse, opt for investments that are less risky but provide above-average returns and outperform inflation over the medium to long term.
We’ve selected some of the most attractive passive investment options for anyone interested in putting their money to work for them.
eurobonds – These are bonds issued by governments and denominated in US dollars.
- Bonds attract a coupon or interest rate that is paid once or twice a year, depending on the nature of the security.
- Eurobonds are a very good hedge in times of currency fluctuations and depreciation.
- Also, interest rates on Eurobonds attract a yield of 6-8% depending on when they were issued.
- Now that bond prices have fallen, these same Eurobonds that were bought around 8% in the issue now attracts returns of around 13-14%.
Government Values – This may not have made the cut just 6 months ago, however things have changed in recent weeks.
- Since the central bank started its policy of raising interest rates (now 16.5%), we have also seen a rise in government securities such as Treasury bills and FGN Savings Bonds.
- Recently, the government issued FGN Savings Bonds Savings Bonds at 2 and 3 years, with interest rates of 12.25% and 13.25%, respectively.
- One-year Treasury bills are also currently being bought. about 14.8% over the highest in about two years.
- While it is still below inflation, it is one of the safest investments around, especially if you are a passive investor with a very low risk appetite.
Stock Exchange – You know what they say about the statement of the legendary Warren Buffet “be greedy when everyone is fearful, and fearful when everyone is greedy” There could never be a better time than now to heed that advice.
- A common mistake investors make is investing in the stock market when valuations are high. While there is still money to be made with some stocks, especially if you do it right, most end up losing.
- The best time to invest in stocks is when valuations are low, especially for companies with very strong fundamentals.
- The strategy is to pick them up when their share prices are relatively low and then trade them in when the economy is much better and everyone is looking to buy.
- December and early January is usually the best time to get into stocks like this.
- Returns between market crashes and boom periods can be between 25% and 50% for good stock picks.
Real Estate (local): This is an obvious choice in terms of high inflation, but it has something to do with it. By targeting the right location and investing through the right developer, real estate deals can be a money maker.
- Some developers who spoke to Naijaonpoint indicate that locations around the Lekki, Ikate and Agungi hubs are highly sought after, especially for young and upwardly mobile professionals looking for apartments.
- You can buy to sell or buy to rent and earn a fixed yearly income from these places.
- A two-bedroom apartment costing around 60 million naira can bring the owner between 1.5 and 3 million naira in annual rent, depending on the location.
- Another source of money for real estate investments is short-term leasing. Instead of renting out your apartment, you can rent it out to guests for a day, two days, a week, or even a month. Short allows homeowners to average N100k per day on their apartment.
- The yields for real estate transactions range between 8-12% per year for rental returns and between 30% and 60% for capital gains on the sale of the asset.
Real Estate (foreign): There are very few investments as sweet as those associated with foreign currency income and none other than real estate offers this handsomely.
- Savvy Nigerians have started to spot the opportunity in this space and take advantage of the growing overseas property market.
- If you live in Nigeria and want to own property abroad, it is usually a very expensive undertaking. However, what some smart guys do is partner with Nigerians living abroad who they can trust, to co-own property.
- The key advantage here is a mortgage that you can’t get if you don’t have a credit profile abroad. But by partnering with someone who lives abroad but has a high profile, you can break into real estate in countries like the US and Canada.
- But if you have cash, then you don’t need to look for anyone you can partner with. Just make sure you find the right real estate agents and attorneys who can help you do this.
- The yields for real estate transactions range between 4-8% per year for rental income and between 20% and 30% for capital gains on the sale of the asset.
CRYPTOCURRENCIES – When we recommended Bitcoins as a buy a few years ago, not many people knew what it was.
- Now, cryptocurrencies are household names when it comes to investment options, albeit notorious ones.
- The latest crypto crash hasn’t helped much, especially for altcoins and exchanges like FTX that have crashed.
- Bitcoin prices are down about 70% from their highs last year and are likely to fall further.
- However, there are great cryptos with incredible use cases that will still be valuable after this cycle is over.
- Returns on investments in cryptos cit can be as high as 1000% between the bust and bubble cycles.
Opening – Now that the winds have moved away from the sails of chronic fundraising startups, investors are now scrambling for businesses that actually generate cash and pay dividends.
- Until now, the obsession with startups was just raising money at lofty valuations in exchange for superlative growth in customer acquisition.
- But with interest rates rising around the world, the focus has now shifted to companies that make money and can provide investors with some form of return.
- This investment can be through equity or debt or preferred stock.
- There are several great small businesses like this, that operate in the informal market but have the ability to deliver super returns to their owners.
- The returns on this type of investment can be as up to 30% per year for investors.
Fixed rent – This is the traditional placement of funds with financial institutions such as banks and fintech in exchange for interest income.
- Now that interest rates are high, investors with liquid cash can expect to attract high interest rates on their investments.
- Just go to your bank and ask for fixed-term investments in exchange for interest.
- For most commercial banks, the higher your fixed deposit, the higher the interest they are willing to pay and vice versa.
- Microfinance banks that lend loans offer significantly higher interest rates to their depositors.
- Interest rates for commercial banks range from 8% to 16%, depending on how much cash you have.
- Banks can pay up to 16% for fixed deposits if you have more than N100 million to deposit with them for a year.
- Microfinance banks, on the other hand, can pay between 1.5% to 2% per month on fixed deposits if you are ready to deposit your money with them for at least 6 months.
P2P loans – Also known as a “Peer 2 Peer” loan, it basically takes advantage of the applications to end up with the money of the registered users of the applications in exchange for interest.
- This is a risky business and not for someone with little appetite for risk.
- Basically, you can lend people your assets (stocks, cryptocurrencies, etc.) or cash through platforms that create a marketplace for these types of transactions.
- It is important to note that most are not regulated in Nigeria, so we will not mention names.
- Another useful P2P loan is the “Proof of Funds” loan, which is basically lending money to Nigerians looking to fulfill part of the visa requirements to travel abroad.
- The interest for this type of transaction can be as high as 4% per month but as stated therefore, it comes with a significant amount of risk.
… Top 10 Passive Investment Opportunities in Nigeria Today Read more about … Naijaonpoint.