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Recession and Where to Invest Your Small Money

Proshare

Tuesday, November 29, 2016 8.50 pm / Taiwo Ologbon-ori

The Nigerian economic outlook remains bleak in both short-term and mid-long term. People are beginning to lose hope/confidence as economic realities are becoming more unbearable day-by-day. Masses are impatient, faith in ability of current government to address the gloomy outlook and turn things around is in doubt while government’s popularity is shrinking gradually- this has led to mixed feelings towards investments. The stock market performance remains unimpressive with YTD loss of 11.90%, corporate institutions have abandoned equity financing to embrace debt-financing. On the other hand, the yield in fixed income market looks good but not attractive to retail investors according to short survey conducted via phone-call.

As a low-income earner, deciding where to invest your little money in a recessionary environment is not an easy task, particularly when you are limited by lack of experience and knowledge. Just imagine, how would you invest your N100,000?

In reality, the amount of money does not really count but your investment objectives/goals, experience and knowledge of products/market as an investor count in a recession.

As a matter of guiding on this subject matter, it is important to let know you that usually equity market is tend to shrink during recession while fixed-income market (T-bills & Bonds) would experience expansion, just as we are now experiencing on Nigerian bourse.

This fact does not make equity market a wrong choice for your little money but it unsuitable for short-term investment objectives/goals. As we speak, equity market is providing ample of long term opportunities for long-term investors

Stock market is volatile at the moment as the weak economy has reinforced weak market, majority of investors are reshuffling portfolios and reducing exposure accordingly as economy continues to shrink without signs of recovery soon. This has caused Prices and valuations of blue chip and big capped stocks to shed weight considerably. This is the time your little money can achieve more long-term value for you, provided you have long-term (18months and above) investment horizon.

On a similar pattern, mutual funds are mostly long-term investment vehicles for income investors. Performance of mutual-funds in recent periods has not been impressive due to the prevailing bleak economic outlook. All mutual funds are bleeding, particularly, equity-based mutual-funds.

Though, with an exception to money-market funds and mixed-funds that retain value modestly. As at November 25th, 2016, the total Net Assets Value of mutual funds had declined by 16.88% (N43.83billion loss). The mutual-fund market is technically proving another round of great opportunity for long-term income investors to acquire more units at cheaper price.

On a final note, investment in fixed-income instruments like T-bills and bonds is safe but it attracts low returns in both short-term and long-term.

In a recession, short term fixed income instrument (T-bills) is more advisable due the usual attractive rates and surge in demand. Just as noted above, if you are considering where to safely invest for short term, You can consider the short maturity treasury bills (T-Bills) e.g 30days and 90days T-bills are considered as best option for your short term investment goals as current economic conditions have suggested.

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