Since I published my article titled, Money: What I Wish I Knew 15 Years Ago, some people have asked the question, “Subomi, how can I invest 1 million Naira?” Now, I have a detailed video & Whatsapp course which addresses this question. However, in this article, I will provide some answers. As usual, I speak from personal experience, and not as a financial adviser. You should perform your due diligence and speak to a financial adviser before making a decision. It’s the responsible thing to do.
If you haven’t read my previous article on Money, please do so now as it contains invaluable background information.
Now, I won’t assume everyone has a million. So, let me lay out a plan for building up 1 million Naira from your existing earnings.
First, please set aside at least 10% of your salary (and other income sources) every month. Separate the funds from your account immediately, so you do not spend it.
Transfer the funds to an interest bearing investment account, NOT a savings account. I recommend using a Money Market Fund account, which I will explain later. Keep “topping up” your investment 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. N2,000 to N100,000
a. Money Market Funds
You may start your investment journey with a Money Market Fund Account. In simple terms, it is an account managed by a credible Asset Management institution. It enables individuals with small amounts of money, to come together to invest as a group. The funds are then managed by professional fund managers, and invested in securities issued by governments, financial institutions and large corporations. An example of those securities is Treasury Bills.
Money Market Funds are liquid and safe. They are different from Equity Funds which invest in stocks & shares.
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. (Usually there’s a small penalty if you cash out before 30 days.) The ease of topping up allows you to transfer a percentage of your earnings, on a regular basis. The flexibility of cashing out means you can use the funds to invest in other things, as soon as you are ready.
At the time of writing, the performance of Money Market Funds was 12% per annum. (If you cash out in 3 months for instance, prorate the annual return for a 3-month period.) This is much better than a savings account, which has an overall return of about 4% to 10% per annum. Because the returns in Money Market Funds are compounded monthly or quarterly, they provide a better return that most app based savings products which are compounded annually.
Examples of Money Market Funds include Stanbic IBTC Money Market Fund, ARM 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 N2,000. You should read this article for more information on how to open a Money Market Fund Account.
b. Treasury Bills
Treasury Bills (TBills) are backed by the Federal Government and may be easily purchased through your bank. This is the process for investing:
Call your bank to ask for the minimum amount needed to purchase TBills through them. The amount differs from bank to bank but is usually, N100,000. (For now, only those with at least N50 million can bid for TBills directly from the Central Bank.) Your bank will advise you of the current rates of return. You can confirm the range on CBN’s website.
Your bank will send you a form. Fill it and return it. Then, the sum will be deducted from your account for investment. The entire process may be done via email.
Typically, TBills are sold at a discounted rate. This means you pay N88,000 for N100,000 worth of TBills at a 12% discounted rate, for example. After 364 days, you get N100,000 back. So, essentially, you’ve made your profit upfront.
Profits from TBills are not taxed, which is a plus, but, you can’t top up an existing account. The account is inflexible. Any time you have new funds to invest, you need to purchase a new tranche of TBills. The buying window opens up every 2 weeks.
You can merge investing in TBills with Money Market Funds. Let me run a sample scenario for you. You buy N100,000 worth of TBills at N88,000. You can then re-invest the N12,000 left over, in a Money Market Fund and earn another N1,440 per year on it. For people who don’t like complication, just stick to a flexible Money Market Fund account alone. Here’s a useful article that compares TBills and Money Market Funds.
2. N100,000 – 750,000
Agriculture Crowdfunding: You may invest in a credible agriculture crowdfunding platform, like FarmCrowdy, Thrive Agric or Grow Crops Online.
When you invest, please do not put all your eggs in one basket. For instance, Poultry usually has the shortest tenor and the lowest investment commitment. Your principal is guaranteed by insurance. But, should there be bird flu, you will lose your profit, even though you will get back your principal. So, I advise you to hedge your investment by spreading it across different types of farms – e.g. rice and maize – and different companies.
You may also consider investing directly in farms, to cut out the middle man (the agriculture crowdfunding firm). You will receive profits after harvest. However, due diligence is important.
3. N750,000 to N1,000,000
Investment Mix: You may explore a mix of Agriculture Crowdfunding and Virgin Land. Like I mentioned in a previous article on property, there are many virgin real estate opportunities. They fall within the N250,000 to N1,000,000 range.
You may even take advantage of land opportunities in your home town. Ask your family to help you to identify land you can buy. They will know the “Omo Oniles” and can negotiate for you. Identify areas that are close to business districts or main roads, in the hope of selling in future at commercial rates. You may also target growing residential areas. As people retire to those areas, the value of real estate will rise.
You may learn more about real estate here .
Now, before you invest on any platform, remember to do your due diligence and ask some foundational questions:
What is the minimum investment amount?
What is the tenor?
What are the fees?
What has the return been for the last 6 months to 1 year?
Who are the promoters?
So in summary, if you have N1,000,000, I would advise you to invest in a mix of Agriculture Crowdfunding, Virgin Land and Money Market Funds.
I hope this has been helpful. Thank you and feel free to share.
PS: I run a 3-day Investment Education Course on Whatsapp. After the course, I connect people to credible investment managers and deal flows. To learn about my course, please click here.Learn how to invest N1 million in today's economy. Click To Tweet