For Nigerians with excess cash looking for where to invest can be nightmare. It’s a bit ironic considering that those without cash typically have a gazillion ideas of what they can do with cash if they have it.
Recently, we have been getting calls from some of our followers asking us about what sort of investing options are available for them in this bad economy. Opportunities are always available to make quick bucks in a tough economy especially if you have the cash to do so. However, there are not a lot of investing options available especially if you consider your risk appetite, expected returns and the payback period.
One option that we however like to recommend are treasury bills. Call us ultra conservative but we believe that is the way to go especially if you are risk averse. These other reasons back up our preferred option.
High return on investment -The Federal Government has been borrowing a lot of late as it tries to fund the 2016 budget. The Government is also trying its best to suck out a lot of cash from the economy in the hope that it will help reduce the demand for dollars. These two actions are driving up interest rates in ways not seen in decades. Just yesterday (August 18th) the CBN released its latest auction results revealing that Treasury Bills are now going for as high as 17.4% per annum. Investing in Treasury bills at a return of 17.4% per annum is almost unheard for a short term government borrowing. Flashback a year ago this same investment was going for like 9% per annum. Opportunities like these don’t come too often and in addition not many businesses can generate a return of 17.4% per annum. We know a lot of people want to invest N100 and get N1000 as profit but hey, that’s a fool’s paradise. For this sort of return, we’ll jump at it if we are risk averse.
It’s safe – Just as the return of about 17% is impressive it is important to note that the investment is also safe. Investing in Treasury Bills means lending money to the safest borrower out there which is the government. Unlike most businesses that you invest in, there are risks of losing part or all of your money. There was a lady who once reached out to us complaining that she had invested her family money in a sort of mutual fund that never gave her returns. When she then requested to pull out her money, they kept posting her till she decided to take legal action. She had written to the Security and Exchange Commission to also help rescue her situation. But we know how frustrating these things can be. Treasury Bills on the other hand is a different ball game. The investment is safe and your returns are paid upfront. You also get paid back your original investment on the day the government says it will pay it. No come tomorrow or wait till thy kingdom come. It’s basically automated.
Above Inflation Rate – Inflation is one of the enemies of time bound investing. When you invest in a business at say 10% per annum and inflation rate at 16.5%, economist believe you have a negative real return of -6.5%. In effect, even though you are getting 10% returns, the value of the money is eroded by inflation. Treasury bills at the current rate of about 17% is higher than inflation rate making it positive in real terms. In addition, the interest you earn is actually paid upfront meaning that you get more hedge against inflation. For example, if you invest N1 million in Treasury bills for 17% per annum for a period of 364 days, you earn an interest of N170k. Now, unlike most businesses where you have to wait till the end of the tenor of the investment to earn your return, the government actually pays you the return upfront. They pay you the N170k the same day the debit your account for the N1m. In fact, sharp investors compound that return by reinvesting it again in another round of treasury bills.
Desperate times require desperate measures so it’s quite tough navigating through a tough economy. Remember that people are desperate and looking for all the opportunities to make some money out of you. If you have loose cash (N1m and above) and don’t have any better use for it, you are best investing it in an outlet that guarantees you a positive return.
Treasury Bills is not for those who have meagre savings. We tend to prefer a minimum investment of about N1 million and it must be cash that you don’t need in three to 12 months. You don’t invest in treasury bills in August expecting to cash out in September because you suddenly remember that you have to pay your rent.