Opportunities For Passive Investment in Nigeria
Passive investment are those made by investors who do not participate in the day-to-day rigors and surveillance of investments.
This creates a system that makes your money work for you while you concentrate on other tasks that feed into your capital source. The majority of lower- and middle-class Nigerians belong to this group.
The last three years have proved to be a challenging time for emerging economies of Africa, particularly the sub-Saharan countries such as Nigeria and Ghana. The Covid-19 outbreak led to an exodus of foreign investors out of Nigeria and other markets in the emerging world, resulting in an economic crisis in the currency market that has caused an exchange rate of dollars and naira to fall by more than 50% since the start of 2020.
This has made passive investment extremely unattractive and profitable, mainly because people are concerned about losing their funds. Despite these fears, it is possible to find options for passive investment in a market with rising inflation rates, declining exchange rates, and other macroeconomic issues.
Investors who desire risk typically benefit from low-risk economic conditions to invest in investments that yield huge returns. Others who are more cautious choose more secure Passive investment. However, they can earn higher-than-average returns and exceed inflation in the medium to long term.
We’ve selected some of the most appealing passive investment options for those who want to focus on letting their money be used for their benefit.
The government issues Eurobonds. United States dollars back bonds issued by the government.
- The bonds pay an interest rate or coupon, which is paid either once or twice a year, based on the type of security.
- Eurobonds are an excellent protection against currency fluctuation and depreciation.
- Additionally, yields on Eurobonds provide a return of 6-8percent, based on the date it was issued.
- With bond prices dropping, the same Eurobonds priced at approximately 8 percent at the time of the issue are now attracting around 13-14% yields.
Government Securities – This may have been a different case six months ago. However, things have changed over the last few weeks.
- Since the central bank began its program of increasing interest rates (now 16.5 percent), We’ve also seen an increase in government securities such as Treasury bills and FGN Savings bonds.
- In the last few days, the government has issued FGN Savings Bonds with 2-year or 3-year savings bonds with an interest rate of 12.25 percent and 13.25 percent, respectively.
- One-year Treasury bills are at approximately 14.8 percent, the highest in the past two years.
- Although it is still lower than inflation, it’s one of the most secure passive investment available, particularly when you’re an investor who is passive and has a highly low-risk appetite.
Stock Market, The Stock Market What, do they say about Warren Buffet’s legendary quote, “be greedy when everyone is fearful, and fearful when everyone is greedy” there could never be an ideal time to follow the advice of Warren Buffet.
- The most frequent mistake made by investors is to put money into the stock market at a time when valuations are very high. Although there’s potential for profit from certain stocks, particularly at the right time, most lose.
- The ideal opportunity to invest in equity is when the valuations are low, especially for companies with solid fundamentals.
- The idea is to take the stocks up when the share price is low and then sell them off when the economy is better, and everybody is in the market to purchase.
- December through January is typically the ideal time to enter into stocks such as this.
- Returns on passive investment between downturns in the market and boom times can range between 25 percent to 50 percent for stocks that are good selections.
Real estate (local): This is a logical option in high inflation, but there’s an underlying ring to it. If you choose the right area and invest with the appropriate real estate developer, real estate investments could be a good source of income.
- Sure, developers who spoke to Nairametrics have indicated that areas around Lekki, Ikate, and Agungi are highly sought-after, especially by younger and upwardly mobile professionals seeking apartments.
- You can sell your home or buy to rent to earn an annual fixed amount every year from these locations.
- A two-bedroom apartment priced at N60 million could cost the owner around N1.5-N3 million annually in rent, depending on the area.
- Another way to make money from real estate passive investment is the short-let. Instead of renting your property, you can open it to guests for one day or two days, a week, or even a month. Short lets owners earn an average of N100k per day on their property.
- The returns for real estate transactions can range from 8-12% per year in rental yields and range from 30% to 60 percent for capital gains resulting from selling the property.
Real estate (foreign): There aren’t many investments that are so delicious as those that are based on foreign currency earnings and only real estate.
- Intelligent Nigerians are beginning to see opportunities in this sector and leveraging the growing property market in other countries.
- If you reside in Nigeria and you want to buy properties abroad, it’s usually a costly endeavor. However, what clever people do is join with Nigerians who reside abroad, who they trust to share ownership of properties.
- The main benefit here is a loan that is unavailable if you don’t have an international credit score. However, partnering with someone who is a resident of another country but has a good credit profile makes it possible to get into the property market in nations like the US and Canada.
- If you can pay cash, then you do not search for someone you can collaborate with. Be sure to locate the right realtors and lawyers to assist you.
- Returns on real estate transactions can range from 4 to 8 percent for rental yields and between 20 and 30 percent for capital gains on the disposal of the property.
Cryptocurrencies– When we suggested Bitcoins as a potential purchase a few years ago, everyone knew what they were talking about.
- Today, cryptocurrency is one of the most well-known names for investing alternatives, though not well-known.
- The recent cryptocurrency crash hasn’t been very helpful, particularly for exchanges and other altcoins like FTX, which have sunk.
- Bitcoin prices are down around 70% from record highs in the year before and are susceptible to plummeting even more.
- Many significant cryptos are available with amazing uses that will be worth a look after the current cycle has ended.
- The returns for investing in cryptos could reach 1,000 percent during the bust or bull market cycles.
Now that the wind is off the sail of the perpetual crowdfunding startups, investors are going all in for companies that earn dividends and cash flow.
- Before this, the only option for startups was to raise money at high valuations to get an increase in customer acquisition.
- With interest rates increasing worldwide, the focus has changed to businesses that make money and can provide investors with some return.
- It can be done through credit or equity, or preferential shares.
- Many great small-scale businesses like this operate on the informal market yet can provide huge returns to their investors.
- The returns for this type of investment could be as high as 30% per year to investors.
Fixed Income Fixed Income HTML0 – This is the standard method of placing money with banks and financial institutions like fintech and banks to exchange interest earnings.
- Since interest rates are very high, cash-liquid investors will likely receive high-interest rates for their investments.
- Contact your bank and ask for a fixed deposit investment to earn interest.
- In most commercial banks, the greater your fixed deposit, the more interest they’re willing to pay, and vice versa.
- Microfinance institutions specializing in lending can offer much greater interest rates for their customers who are depositing with them.
- The interest rates of commercial banks can range from 8 to 16% based on the amount of cash you have.
- Banks will pay as high as 16% on fixed deposits when you have more than N100 million to put in with them for an entire year.
- Microfinance institutions, on the contrary, offer 1.5 percent to 2% monthly on fixed deposits if you are willing to deposit your funds in their bank for at least six months.
P2P lending, Also called “Peer 2 Peer” lending, is basically using apps to transfer money to users who have signed up to the apps to exchange interest.
- This is a precarious business and is not recommended for those with a low-risk appetite.
- It is possible to lend others your assets (stocks or crypto, for instance.) or cash through platforms that make markets for these types of transactions.
- It is important to remember that most of them aren’t controlled in Nigeria so we won’t mention names.
- Another option for P2P lending that is beneficial is “Proof of Funds” lending which lends money to Nigerians looking to satisfy a part of the visa requirements required for traveling to other countries.
- The cost of these transactions could be as high as 4% per month. However, as we have stated, it carries the risk of a substantial amount.