Top 10 passive investment opportunities in Nigeria today

Passive investing is investments made by people who do not engage in day-to-day rigours and monitoring of investments.

It is essentially making your money work for you while you focus on doing other things that feed into your source of capital. Most middle-class and upper-class Nigerians fall into this category.

However, the last three years have been a very difficult one for emerging economies in Africa particularly sub-Saharan African countries like Nigeria, and Ghana. The Covid-19 pandemic triggered an outflow of foreign investors from Nigeria and other emerging markets triggering a currency crisis that has resulted in the exchange rate between the naira and dollar falling by over 50% since early 2020.

This has made passive investing really unattractive and seemingly less lucrative mostly because people are afraid of losing their money.  Despite these concerns, there are passive investment opportunities in an environment associated with high inflation rates, depreciating exchange rates, and other macroeconomic challenges.

Investors with an appetite for risk often take advantage of weak economic environments to make investment decisions that generate massive returns. Others, who are risk-averse, go for investments that are less risky but provide returns that are above average and outpace inflation over the medium to long term.

We have curated some of the most attractive passive investing options for anyone who is keen on allowing their money to work for them.

Eurobonds – These are government-issued bonds issued by governments and denominated in United States dollars.

• The bonds attract a coupon or interest rate that is paid once or twice annually depending on the nature of the security.
• Eurobonds are a very good hedge in times of currency fluctuations and depreciation.
• In addition, interest rates on Eurobonds attract a yield of 6-8% depending on when it was issued.
• Now that bond prices have fallen, these same Eurobonds that went for about 8% on the issue now attract yields of about 13-14%.

Government Securities – This probably may not have made the cut just 6 months ago, however, things have changed in recent weeks.

• Ever since the central bank started its policy of raising interest rates (now 16.5%), we have also seen a rise in government securities like treasury bills and FGN Savings bonds.
• Just recently, the government issued FGN Savings Bonds 2-year and 3-year savings bonds, with interest rates of 12.25% and 13.25%, respectively.
• One-year treasury bills are also currently going for about 14.8% about the highest in about two years.
• Whilst still below inflation, it is one of the safest investments out there, especially if you are a passive investor with a very low-risk appetite.

Stock Market – You know what they say about the legendary Warren Buffet’s statement “be greedy when everyone is fearful, and fearful when everyone is greedy”, there could never be a better time than now to heed that advice.

• A common mistake investors make is to invest in the stock market when valuations are high. Whilst there is still money to be made for some stocks especially if you time it well, most end up losing.
• The best time to invest in equities is when valuations are low, particularly for companies with very solid fundamentals.
• The strategy is to pick them up when their share prices are relatively low and then flip them when the economy is a lot better and everyone is now looking to buy.
• December and early January is often the best time to get into stocks like this.
• Returns between market downturns and boom periods can be between 25% and 50% for good stock picks.

Real Estate (local): This is an obvious choice in terms of high inflation but there is a ring to it. By targeting the right location and investing through the right developer, real estate deals can be a money-making machine.

• Some developers who spoke to Nairametrics indicate locations around Lekki, Ikate, and Agungi axis are highly sought after especially for young and upward mobile professionals looking for apartments.
• You can buy to sell or buy to rent and earn a fixed income annually from these locations.
• A two-bedroom costing around N60 million can fetch the owner about N1.5-N3 million in rent annually depending on the location.
• Another money spinner for real estate investments is short-let. Rather than rent out your apartment, you can let it out for guests for a day, two days, one week, or even a month. Short lets owners make an average of N100k per day on their apartment.
• Returns for real estate transaction range between 8-12% per annum for rental yields and between 30% to 60% for capital gains on the sale of the asset.

Real Estate (foreign): There are very few investments as sweet as the ones associated with foreign currency income and none other than real estate delivers this bountifully.

• Savvy Nigerians have started spotting the opportunity in this space and taking advantage of the rising property market abroad.
• If you live in Nigeria and want to own property abroad, it is typically a very expensive venture. However, what some smart guys do is partner with Nigerians who live abroad whom they can trust, to co-own properties.
• The key advantage here is a mortgage which you cannot get if you do not have a credit profile abroad. But by partnering with someone who lives abroad but has a great profile, you can make inroads into the real estate market in countries like the US, and Canada.
• But if you have cash, then you need not look for anyone you can partner with. Just make sure you find the right realtors, and lawyers that can help you get this done.
• Returns for real estate transaction range between 4-8% per annum for rental yields and between 20% to 30% for capital gains on the sale of the asset.

Cryptocurrencies – When we recommended Bitcoins as a buy a few years ago, not a lot of people knew what it was about.

• Now, cryptocurrencies are household names when it comes to investment options albeit a notorious ones.
• The latest cryptocurrency crash has not helped much, especially for altcoins and exchanges like FTX that have collapsed.
• Bitcoin prices are down about 70% from their year highs last year and still likely to fall even further.
• However, there are great cryptos out there with incredible use cases that will still be valuable once this cycle is over.
• Returns for investments in cryptos can be as high as 1000% between the bust and bubble cycles.

Startups – Now that the winds are off the sail of chronic fundraising startups, investors are now going all out for businesses that actually generate cash and pay dividends.

• Before now, the fixation for startups was just to raise money at lofty valuations in exchange for superlative growth in customer acquisition.
• But with interest rates rising across the world, the focus has now shifted to businesses making money and being able to give investors some form of returns.
• This investment can be via equity or debt or preference shares.
• There are several great small businesses like this, that operate in the informal market but have the capacity to deliver super returns to their owners.
• Returns for this sort of investment can be as high as 30% per annum for investors.

Fixed Income – This is the traditional placing of funds with financial institutions such as banks and fintech in exchange for interest income.

• Now that interest rates are high, cash-liquid investors can expect to attract high-interest rates for their investments.
• Simply, approach your bank and ask for fixed deposit investments in exchange for interest.
• For most commercial banks the higher your fixed deposit the higher the interest they are willing to pay and vice n versa.
• Microfinance banks that are into lending offer significantly higher interest rates to their depositors.
• Interest rates for commercial banks range between 8% to 16% depending on the cash you have.
• Banks can pay as much as 16% for fixed deposits if you have over N100 million to deposit with them for a year.
• Microfinance banks, on the other hand, can pay between 1.5% to 2% per month on fixed deposits if you are ready to deposit your money with them for at least 6 months.

P2P Lending – Also known as “Peer 2 Peer” lending is basically leveraging on apps to end money to registered users of the apps in exchange for interest.

• This is a risky business and not for someone with a low-risk appetite.
• You can basically lend people your assets (stocks, crypto, etc.) or cash via platforms that create a market for these sorts of transactions.
• Important to note that most are not regulated in Nigeria so we will not be mentioning names.
• Another useful P2P lending is “Proof of Funds” lending which is basically lending money to Nigerians looking to fulfill part of the visa requirements for traveling abroad.
• Interest for these sort of transactions can be as high as 4% monthly but as stated it thus come with a significant amount of risk.

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