Investment Options as Interest and Money Market Rates Fall

The hurricane of the global financial crisis that buffeted world economies seems to have finally made landfall in Nigeria. The credit squeeze ushered in by the August 2009 CBN-driven banking reforms seems to be near total, with banks virtually ceasing to lend, and money market rates in free fall.

Interest on fixed deposits and commercial paper tumbled from 15 – 17% some months ago to 3 – 5% some days ago, and there is no telling where the bottom is. The treasury bills rate stands at less than 1%. Many survivors of the stock market crash of 2008/2009 fled for cover in the money market and real estate market. For a fixed deposit of N10 million and above, one was guaranteed a cash flow of more than N100K per month. That is now history.

Investors are now left with the question of where to move their money to. Real estate is full of booby traps, ranging from getting genuine acquisition-free land to multiple land owners and the location of the land with respect to the sea level (for Lagos residents). Turn key investment options seem to run out for folks that prefer to hand over their money and get on with other things.

This brings to the fore, the fact that as an investor, you need to remain in the driver’s seat of your investment. The more financially literate you are, the more options are open to you, and the more control you have over your investment. Buying stocks on recommendation and investing in the money market is a no-brainer.

However, to remain in control of your investment, and to influence your rate of return, you need to step up your game.

Experienced investors have a minimum expected rate of return for their investments. For some, they want to double their money in at least 5 years, which translates to a minimum return of 14.4%. Some want their money back in 2 years, which translates to 36%, i.e. 3% per month, compounded over 24 months. This is based on where they are, where they are going, and how soon they want to get there, realistically.

Basing your long-term plan (e.g. retirement plan) of expected return on stocks and money market rates is a recipe for disappointment and heartbreak. While returns are guaranteed in the money market, the rates are not, over time. It goes up and down. Consequently, parking your money and hoping for the best is a risky stunt.

The easiest way to retain control is to go in as an inside investor. Start your own business, and grow it. Invest in your business. If you pay your dues in investment education, become street smart, upgrade your marketing skills, and do all it takes to run a successful business, your rate of return will beat the stock market and money market by a wide margin.

Making money in the real sense of the word, is starting with virtually nothing, and building a multimillion-dollar business. The rate of return, when you build your own business from scratch, can be infinite. Most of the billionaires on the Forbes list started from ground zero.

For folks who are not bold enough to start their own business, investing in another’s dream is an option. The snag is, if you are not sure of the pedigree of the person you are giving money to, you may kiss goodbye to the return of your investment. Still, there are other investment options. The secret is to increase your financial IQ, then you will be better able to navigate the world of business and finance, and cease from being at the mercy of advisers who are more broke than the people they are advising, doctors who cannot heal themselves.