Where Do I Put My Money?

The need for financial education is greater now than ever before, as opportunities to put your money somewhere and get good returns become more limited. The banking sector reforms have led to a crash in deposit rates, as banks no longer need to source for funds at high interest rates, to patch holes in their books.

Currently, some stocks in the stock market give better returns per annum than the money market. Guarantee Trust Bank is proposing a bonus issue of one share for four existing shares. That is a 25% return without factoring in the 75kobo per share dividend.

However, not every stock is a GTB stock. This is where fundamental investing comes in, where you analyze a company to determine if it is a good buy, rather than rely on word of mouth or market sentiments. For most, the wounds of the last stock market crash are still fresh, hence looking at the direction of the stock market is an event that may not happen sometime soon. This is one attribute of amateur investors, getting emotionally involved in their investment decisions, and making decisions based on past experiences rather than present facts.

Investing in the real estate sector is not as simple as buying a property in a prime location and bingo! you are in business.  However, if you are investing in a property, it is a whole new ball game altogether. You have to decide whether to buy/build and sell or buy and hold for appreciation before selling, or buy/build and give out for rent.

The first two options are the most common, as a lot of investors seem to be short-term players. To make a profit in these two scenarios, the property has to appreciate. This has been the experience so far in Nigeria. Property prices always go up. Recent events have bucked this trend. The credit crunch has taken the wind out of the sail of effective demand for properties, hence sight of properties with a for sale sign for upwards of six months is becoming common. In some cases, the sellers are accepting lower offers. The myth that property prices always go up may no longer hold.

Entering an investment property deal with the assumption that prices always go up is a recipe for possible future heartbreak. In places like Lagos where there is limited land, the demand may remain strong, but the local economy remains a factor. The decision to buy should take all factors into consideration, rather than simply assume that prices always go up. If you are taking a loan from the bank at 20% to buy to hold with the assumption that the property will appreciate as usual, you are taking a huge risk.

Buying/building to rent is a whole new ball game. The expected rent and vacancy rate must result in a net positive cash flow, for the project to make economic sense. If you take a mortgage from a bank at 20%, your interest payments alone will outstrip your payment of the principal sum, to start with. In such a hostile interest rate regime, the best bet is to use your money. Coming up with such a huge sum is not possible for many.

However, before you proceed if you have the funds, you have to determine your expected rate of returns. With this information, you can decide whether to go ahead with it, or simply invest your money somewhere else.

There is also online forex trading, but this is not an all-comers affair. You need to pay the price to study how it works, and how the events across the globe impact regional and world economies, interest rates, and ultimately on exchange rates. As with the stock market, there is fundamental and technical trading.

You have to learn how to hedge your position to stop loss or take profit. It is not a place to put your money, but a place to risk it in the fast-moving world of world currencies where you can go in and get out within a day. If you can pay the price, and have an appetite for risk, the results can be very rewarding.

There is always the option of buying and selling. Again, this is not an all-comers affair. The fact that Sisi Clara seems to be making it big does not mean that you should plunge in head first. You have to study the market so as to have a clear understanding of what you are getting yourself into. You must also have a flair for selling, and if possible how to sell snow to Eskimos. You have to know where and who to buy from at what price, who to sell to, and where to find them. You have to know what to sell. If you do not do proper due diligence, you will end up tying your money up in inventory.

I have a bias for starting your own business. Nothing beats the feeling of starting small and watching your business grow. Apart from rendering valuable service, you employ others, learn on the job, and ultimately take your financial destiny into your own hands. Rather than look for an investment outlet for your funds, you create an investment outlet for your funds, and ultimately for others in the future. For seekers of financial freedom, this is Rich Dad’s recommended route to escape from jail and cross over to the other side.

There is no easy answer to the question “Where do I put my money?”. It is different strokes for different folks…