Since I published my article titled, Money: What I Wish I Knew 15 Years Ago, some people have asked the question, “Subomi, how should I invest 1 million Naira?” I will provide some answers in this post. As usual, I speak from personal knowledge and experience, and not as a financial adviser. Like all advice, you must perform your due diligence before you take mine. It’s the responsible thing to do.
If you haven’t read my previous article, please do so now as it contains invaluable background information.
I won’t assume everyone has a million, so first, let me lay out a plan for building up 1 million Naira, from existing earnings:
a. Set aside at least 10% of your salary every month (and from any additional income that comes your way during the month). Remove the funds from your account immediately, so you cannot spend it.
b. Transfer the funds to an interest bearing investment account. Keep “topping up” the account until it grows to N1 million.
I will now recommend plans for different stages of investment, depending on how much is available to you.
1. N1,000 to N300,000
a. Money Market Funds
You may start by investing in a Money Market Mutual Fund. In simple terms, this is a platform where individuals with small amounts come together to invest as a group. The money is managed by a professional fund manager (like ARM Asset Management or StanbicIBTC Asset Management). The funds are invested in Money Market Securities issued by governments, financial institutions and large corporations who need to raise cash. Money Market Funds are liquid and safe. They are distinct from Equity Funds which focus on stocks & shares and do not guarantee your principal.
When considering a Money Market Fund, look out for these phrases – “Guaranteed Income” and “Open-Ended”. What they mean is your principal is guaranteed and you can top up your account or cash out at any time, after an initial period specified by the fund manager. (Thirty days for instance.) The fact that you can top up regularly, satisfies the need for an account to which you can transfer a percentage of your earnings on a regular basis. The fact that you can cash out at anytime, provides the flexibility of moving on to other investment classes, once you grow your funds.
Currently, the performance of Money Market Funds is comparable to government Treasury Bills which are performing at a rate of 13% – 18% per annum (depending on the tenor). If you cash out in 3 months, prorate the annual return for a 3-month period. You will earn 3.25%. Many Money Market Funds pay dividends (profits) on a quarterly basis, which you should re-invest. (Please don’t spend it oh!)
Examples of Money Market Funds include ARM Money Market Fund, Stanbic IBTC Money Market Fund and Stanbic IBTC Guaranteed Investment Fund. The minimum investment is between N5,000 to N10,000. Investment One’s Abacus Money Market Fund has a minimum investment of N1,000 but the return isn’t as high as ARM’s or StanbicIBTC’s.
b. Treasury Bills
Treasury bills are backed by the Federal Government and may be purchased easily through your bank. This is the process for investing:
Call your bank to ask for the minimum amount that is needed to purchase TBills from them. The amount differs from bank to bank but usually, the minimum is N100,000. For now, only those with at least N50 million can buy treasury bills from the Primary Market (CBN), so you will need to buy from the Secondary Market (your bank), at their own rate. Your bank will send you a form. Fill it after asking what the bid rate range (percentage interest range) is. You can also find the rates easily on CBN’s website (https://www.cbn.gov.ng/rates/govtsecurities.asp).
Your bank may pay your interest upfront after deducting their brokerage fees. (The fees are outlined in the form and are minimal). When your investment matures (after 91, 182 or 364 days), all you get is the Principal as you have already been paid your interest upfront. Your bank may also provide shorter tenors, if you request it and are a significant investor.
Now this is important: You may ask your bank to not pay your interest upfront. Ask them to sell the TBills to you at a discounted rate. This means you pay N82,000 for N100,000 worth of TBills, for example. After 364 days, you get N100,000.
Profits from TBills are not taxed and you can’t top up an existing account. Any time you have new money, you have to start the cycle all over again for 91, 182 or 364 days. The buying window opens up every 2 weeks.
You can merge both investment types. Let me run a sample scenario for you (without accounting for fees): You buy N100,000 worth of TBills and make 18% profit upfront for instance, that is, 18,000 for a 364 day tenor. You then invest the N18,000 in a Money Market Fund and earn another N3,240 in a year. You can see how your investment strategy depends on how involved you want to be.
2. N300,000 – 750,000
With this amount of money, you can invest in FarmCrowdy, a process I describe in detail here.
When you invest in FarmCrowdy, please do not put all your eggs in one basket. Poultry has the shortest tenor right now and the lowest investment commitment (N96,000). Your principal is guaranteed by Leadway Assurance; but should there be bird flu, you will lose your profit. So, I advise you to hedge your investment by spreading it across different types of farms on the FarmCrowdy website – rice and maize, for example.
You may also consider investing in farming or export cooperatives, where you come together with others to buy farming inputs or to sponsor an export container. You will receive profits after harvest or after your container reaches the buyers. These are risky ventures and I do not advise them unless you thoroughly understand the business model of the ventures and trust the people involved.
[Edit: Since I wrote this post, FarmCrowdy has suspended its referral reward programme. (They may reintroduce it, so keep an eye out.) A new kid on the block and competitor, Thrive Agric, has also emerged.]
3. N750,000 to N1,000,000
With this amount, you may explore a mix of FarmCrowdy and Land. Like I mentioned in my first post on money, there are many virgin real estate opportunities at the Gazzette Stage in Lagos State. They fall within the N750,000 to N1,000,000 range. A Gazzette is a document which states that the government has released a portion of land to a community (Omo Onile). Credible property development companies will enter into agreements with these communities. In exchange for developing the land and perfecting documentation (Survey and Certificate of Occupancy), the property developers get plots in return from the communities. They then resell these plots to individuals like you and I. Please note that if you buy at this stage, you will need to budget some more money (say about N250,000), as the property development company may eventually split the cost of land transfer documentation (Governor’s Consent) with all individual buyers or charge a token development levy. Also ensure that the property development company is credible. You may ask a Lawyer to help you look over the agreement or do due diligenceat the Lagos Lands Bureau. (This will be an additional cost.)
You may invest in land with friends. For example, there is a piece of land I just bought for N500,000. The buy-in was N2,500,000 but I had a few friends who were interested, so we split the cost. The plan is for us to sell off in a few years.
You may take advantage of land opportunities in your home town. Call home to ask relatives to help you identify land you can buy. They will know the Omo Oniles and can negotiate for you. Target areas that are close to commercial districts or main roads, in the hope that you will someday resell to a company that wants to site a factory, farm or school, for example. You may target growing residential areas as well. As civil servants retire to those areas, the value of your property will rise.
Learn more about property in my article.
Before you invest on any platform, always do your research and ask the following questions: What is the minimum investment amount? What is the tenor? What are the fees? What has the interest been for the last 6 months to 1 year? Who are the promoters and how credible are they?
In summary, if you have N1,000,000, I will advise you to invest in a mix of FarmCrowdy and Land or a mix of Money Market Funds, FarmCrowdy and Land.
I hope this has been helpful. Thank you and feel free to share.
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