Savings Account, Equity Mutual Fund, Money Market, Bond Fund, Fixed Income, Real Estate Fund or Buy Stocks Yourself?

source: www.thesmallbusinessdr.com 

So you've read my post on budgeting on BellaNaija and my ultimate Personal Finance guide. You've begun working on your finances, you now have a substantial amount every month that you want to invest. Your BIG question is now - Where to invest safely and profitably?

You are in luck!

Today I will be doing another ultimate guide. A guide on choosing the right investment vehicle in Nigeria. I will be looking at the most popular investment vehicles in Nigeria - a High Yield Savings account, an Equity Mutual Fund account, a Money Market Fund account, a Bond Fund account, a Fixed Income account, a Real Estate Investment Trust fund and running your own Stock account.

So let's get down to the crux of this post. I will take each investment vehicle and give you all the actionable details you need.

HIGH YIELD SAVINGS ACCOUNT
A High Yield Savings Account is a special savings account that offers higher interest rate than regular savings accounts. It might come with restrictions on number of withdrawals per month or minimum deposit to enjoy the high interest rate. Mine with Diamond bank doesn't place a withdrawal limit but doesn't provide you with ATM; withdrawal is over the counter.

Pros
A High Yield Savings Account provides the easiest and fastest access to your money among all the investment vehicles listed here. All I do to access my fund is to show up at the bank and fill a withdrawal slip. I can even use the online banking service too.
It provides a near risk-free return on your investment, a predictable interest rate too.

Cons
It provides a very low rate of return on investment. Too low for any long-term financial goal.
It's return rate is way less than the inflation rate, hence your money is actually losing value (purchasing power)

Recommendation
Best used as your Emergency fund account.

EQUITY MUTUAL FUND
The most popular ones in Nigeria are Stanbic IBTC Nigerian Equity Fund, ARM Discovery Fund and ARM Aggressive Fund.
They pull money from different investors and invest on their behalf (mostly in Stocks).
I have one with ARM, and since April 2011, I have been transferring a portion of my salary into the fund monthly (via Direct Debit). I once opened the Stanbic IBTC NEF too, but I closed it when I was reviewing my portfolio in 2012.
Equity Mutual Funds are very easy to open, the requirements are same with opening a bank account, and the minimum opening amount ranges from N10,000 to N100,000. And you'll get an online account to monitor your investment performance.

Pros
Equity Mutual Funds are managed by professional investment managers. And that is a huge relief for most people who want to invest in the stocks market without the fear of losing all their money.
They allow you to automate investments monthly or quarterly, so you end up cultivating a savings habit. Helped me a lot. 
Some (like ARM) will provide you an Investment Account Officer who can provide expert financial/investment advice to you.
Your return on investment can be huge. 



Cons
Most of your money is invested in stocks, you'll have months or years when your investment will de-grow, even beyond your initial capital.
Withdrawal of money from the fund takes about 5 working days.
The Investment Managers make a lot off you, even when they are losing your money. 

Recommendation
If you are young and serious about investing in the stocks market, starting with an Equity Mutual Fund is highly recommended.

MONEY MARKET FUND
A money market fund is like an Equity Mutual fund in some ways. Money is pulled from several investors and invested on their behalf. The major difference is that Money Market Funds invest in short-term debt securities like CD, Treasury Bills and commercial papers. And these have fairly predictable rates of return. Currently, the return rate of Money Market Funds in Nigeria is just about 11%.

Pros
Money Market Funds help low net-worth individuals like me enjoy higher interest rates than possible in an equivalent fixed income account or high yield savings account.
It's extremely unlikely that your investment will de-grow or your initial capital be wiped out. The cases I know of are where the parent company of the fund administrators went belly up. So just stick to the very big and reputable ones and you'll be safe (almost).
You'll also get an Investment officer (depends on the fund administrator you choose)

Cons:
The rate of return hardly catches up to the inflation rate. In the long run, your money will lose purchasing power.
Most Money Market Funds in Nigeria require 5 working days to process your request to withdraw money from your account

Recommendation
Money Market Funds are best for saving money you're not sure what do with. Like sales bonus and lottery winnings (if you play lotteries).

BOND FUND 
A bond fund is also a mutual fund, several investors' money pooled and invested in bonds. 
Firstly, I need to correct the wrong impression most Nigerians have about bonds. Bonds aren't risk free. They can be riskier that stocks.
I'll recommend you go with Stanbic IBTC Bond Fund, I believe it's the best managed. Anyways, they've got that reputation.

Pros
Managed by professionals.
If you go with Stanbic IBTC bond fund, you'll greatly reduce your risk of losing money, and earn a good return.
Best suited for investors that can't cope with the fluctuations in stocks market. Especially investors close to retirement.

Cons
Bond funds are run very conservatively and end up like Money Market funds with slightly higher rate of return and more withdrawal restrictions.
Withdrawal requires several working days to implement

Recommendation
Go for the Bonds Fund if you hate the Stocks market

FIXED INCOME ACCOUNT
Fixed Income account is majorly for the high net-worth people (and companies too). You are able to negotiate an interest rate that can be as high as FGN bond yield without the restrictions that come with bonds.

Pro
Great for people with lots of cash

Con
Bad for poeple with small cash and no negotiation leverage.

Recommendation
Just got your 65 million naira Pension? Fixed Income all the way.

REAL ESTATE INVESTMENT TRUST FUND
REIT as it's popularly known, is a mutual fund that invests in real estate. It's just becoming popular in Nigeria.

Pros
Gives you the opportunity to share in the Real Estate boom, especially in Lagos and Abuja with as little as N100,000.
Excellent for Real Estate investment freaks.

Cons
REIT always underperform stocks. And you often better off playing real estate on your own terms, you can more easily find bargains and make financial windfalls than a Real estate company.

Recommendation
Only if you are obsessed with Real Estate investment and don't have enough to enter big time.

RUNNING YOUR OWN BOKERAGE ACCOUNT
This is the most lucrative investment vehicle. If you put in the hard work and learning required, it beats all the others put together (diversified portfolio). I will be talking more on this in my subsequent posts, so I'll be brief here.

Pros
Provides the possibility of the highest rate of return (compared with the other investment vehicles)
You profit directly from your hard work and knowledge. You become better and better at it unlike the other investment vehicles I listed.
You can even write a book based on your experience and stocks investment strategy. Lots of people are making money doing this.
You stand a chance of becoming a celebrity like Jim Cramer. Everyone will want to listen to you, just show them the records and make some noise.

Cons
You can lose all. Most people do.

Recommendation
If you've got the heart and age on your side, then go for it!

That'll be all for today. Don't forget to subscribe to my blog for daily useful posts directly into your email inbox.