Low risk and Short-term investments for Nigerians in 2023
Investors’ outlook is often diverse. While some investors prefer quick gains and returns, others prefer the slow grind and they love to play the long-term game.
However, no matter your style of investing, it doesn’t hurt to get your hand soiled with different approaches to see if they fit.
It is important to note at this point too that every investment approach has success stories and it may be unfair to portray one as superior to the other.
For instance, there are successful investment funds that invest long-term in securities like stocks, while others prefer short-term bonds or quick scalps.
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That being said, how do you invest for the short term in 2023?
One thing to take note of for short-term investments is the idea that the gains expected shouldn’t exceed the “range of the ordinary”.
Investment opportunities promising short-term “extraordinary” returns are most likely scams. Pyramid schemes pop up every now and then promising returns that would make seasoned investors laugh in scorn.
To succeed in short-term investment, you must curb your greed and your quest to get rich quickly.
In fact, in some cases, your short-term investments may just be the hedge to protect your assets against inflation and nothing more.
Low-risk short-term investments to keep an eye on in 2023
Commercial papers: Commercial paper is an unsecured form of promissory note that pays a fixed rate of interest. It is typically issued by large banks or corporations to cover short-term receivables and meet short-term financial obligations, such as funding for a new project.
A key factor to consider when investing in a commercial paper is the reputation, pedigree and profit projections of the company.
For instance, MTN Nigeria issued 188-day commercial papers at a yield of 11.00% and 267-day commercial papers at a yield of 12.50% in May.
This means an investment of N1 million will yield N1,057,444.44 in 188 days.
To always take advantage of these investment opportunities you would need to keep an eye on financial reports from big companies or subscribe to a financial services provider.
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Mutual funds: Investment in mutual funds can be classified as safe in terms of the likelihood of losing your initial investment or principal.
Mutual funds are owned and maintained by investment houses with highly skilled professionals making investment decisions.
While they have exposure to risky securities like stocks and commodities, they tend to keep their exposure minimal.
An example is the Stanbic IBTC Dollar Mutual Funds managed by Stanbic IBTC. Other investment firms in Nigeria like ARM, and United Capital, also have offerings to the public.
FGN Bonds: Federal Government Bonds are bonds issued by the Nigerian Debt Management Office (DMO) on behalf of the Federal Government.
According to the DMO, these bonds are completely “risk-free”.
The FGN 10 Y bond has a yield of 14.49% as of May 17 2023.
Although these may not completely fit into the short-term narrative, other tiers of Government-backed security like the 1Y and 2Y bonds are also available.
Exchange Traded Funds (ETFs): ETFs are sometimes confusing to new investors and many find it difficult to grasp what they mean.
In simple terms, ETFs are simply a collection of assets offered as a single one for investors.
For example, you can invest in the top 30 manufacturing companies in the US by simply buying the Dow Jones Index DJI.
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This means that you are banking on the performances of these companies collectively and not their individual performances.
This lowers your risk of losses as two or three of these companies may overperform and help mitigate losses from those that underperform.
The DJI is up 0.86% YTD, NASDAQ is up 20.35% YTD (an N1m investment at the beginning of the year would amount to N1,203,500 today), the S&P 500 is also positive with a 8.75% YTD return.
It is important to note however that during a huge global financial crisis like what we saw in 2008, relatively safe ETFs like the S&P 500 may decline significantly.
In 2008 for instance, the S&P plunged 48% in just over six months.
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In conclusion, if you are an investor with say N5 million and you wish to invest in short-term securities you may consider investing across these various instruments.
This is called diversification and it may further reduce your risk as your risk has been stratified across various instruments.
Culled from Nairametrics
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