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, source of funds, and age before investing in stocks, bonds, Treasury bills (T-Bills), exchange-traded funds, foreign exchange, and even cryptocurrency.
Joshua Joseph, an equity analyst at Cordros, advised investors who are risk-takers to allocate a majority of their N1 million investment to equities, with a 60 percent allocation to equities and 40 percent to mutual funds.
“The overall performance of the Nigerian stock market might not be super impressive, but some sectors have outdone the overall index; some stocks have done more than 30 percent year-to-date,” he said.
The market recorded gains in all of four trading sessions, with the Year-to-Date (YTD) return of the index inching up to 11.36percent. Average NTB yield held steady at 20.88percent. Average domestic FGN Bond yield dropped by 4bps week-on-week (w/w) to 18.51 percent while average FGN Eurobond yield declined by 31 basis points (bps) w/w to 9.01percent.
Joseph said that for a 60 percent allocation, “You can put it in stocks that give dividends for liquidity/side incomes, and such stocks include banks and FMCGs, but for investors interested in capital gains, have exposure to telcos and FMCG.
“For investors with low-risk appetite, they can allocate 60 percent of the N1 million to a mutual fund where they can have access to commercial papers, treasury bills, and several other investment tools, 40 percent to equities,” Joseph said.
For people who want exposure to commodities can get ETFs such as the New Gold ETF, Joshua said.
New Gold ETF performed 65 percent year-to-date and mutual funds delivered an average gain of over 13 percent, according to the most recent Weekly Net Asset Value Data for collective investment schemes by SEC Nigeria.
Tosin Osunkoya, CEO of Comercio Partners Asset Management, said that when advising on capital allocation, key factors such as investment goals, time horizon, and risk tolerance of the client are put into consideration.
“However, they can allocate as follows: 40 percent in fixed income, such as T-bills, 20 percent in Commercial Paper, 20 percent in equities, and 20 percent in Money Market Fund (For Liquidity),” he said.
Jennifer Arigwe, personal finance expert and investment banker, said for investors with medium to high risk looking to diversify the N1 million can spread it across equity, money market mutual fund, and a high-interest savings account, and can be applied with more or less amount.
“You can put N500,000 into stocks, N300,000 in treasury bills, N100,000 in a high-interest savings account, and the remaining N100,000 into cryptocurrency,” she said.
She explained that these stocks should be considered long-term to get the maximum returns from them, and this is why the portfolio should be mixed with a medium-term and low-risk instrument such as treasury bills, while the portion in the high-interest savings can serve as an emergency fund and you can get as high as 20 percent on fintech platforms.
“For the N500,000 allocated to stocks, I’ll have some in foreign stocks, some in ETFs such as VOO, and N200,000 in Nigerian stocks such as bank stocks and energy stocks,” she 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 fixed-income.”
He recommends a medium-term duration strategy with active trading activities on the mid-term 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-bellies provide opportunities for active traders who can properly time entry and exit positions based on the evolution of liquidity within the system,” 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.
