RECESSION? Start Planning your Finances

RECESSION? Start Planning your Finances

- in Business

The Nigerian Naira is the world’s worst performing currency against the US Dollar. So why are we starting with the currency? Because it addresses the very reason of why we plan. We plan our finances to address future needs, the purpose is defeated if it does not fulfill its objective due to value erosion.


We are currently in an interesting economic climate, and in order to be ahead of the tides we have to be strategic.
Earlier in the year, at the monetary policy committee meeting, the monetary policy rate – the benchmark rate at which the banks lend from the CBN was raised from 12% to 14%. That means the cost of borrowing is more expensive and the rates from savings should be higher (this is not always the case though or the interest income increases at a slower pace compared to the hike in the monetary policy rate.)
Also the inflation rate is currently 17.7%. For there to be any real growth, on average the interest has to match the inflation rate or be higher.
How can we maximize the current situation?
1.) Fixed term savings
A fixed deposit is a lump sum deposited with a bank for a fixed period amount of time, in exchange for interest. The interest is in the 7% range depending on the bank and the duration. If you are interested in fixing for 1 year, StanbicIBTC offers the highest fixed deposit rates at 12% for amounts fixed for a whole year.

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2.) Treasury Bills / Government Bonds
Treasury Bills(TBs) are a type of government securities issued on behalf of the Federal Government by the Central Bank of Nigeria(CBN) to control money supply in the economy.
But unlike other government securities such as Federal Government of Nigeria (FGN) Bonds and Federal Government Development Stocks(FRNDS) which are long term in nature, TBs are short term securities issued at a discount for a tenor ranging from 91 to 364 days, and they don’t yield interest.

Tenor is the duration of the investment. It is how long you are willing to let your funds stay with the Federal Government. Tenor is usually in 91 days(3 months), 182 days(6 months) and 364 days(one year).Your investment matures after the expiration of the tenor.

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The average T-Bill yield is 18.61%. while the average bond yield is 16.06%. (as at 10/10/2016)

The securities have zero-default risk. Yield/Income on investment is tax-free. The securities can be used as collateral for short-term borrowing from banks.

3.) Mutual Fund
A mutual fund is an investment vehicle made up of a pool of funds collected from many investors for the purpose of investing in securities such as stocks, bonds, money market instruments and similar assets.
One of the main advantages of mutual funds is they give small investors access to professionally managed, diversified portfolios of equities, bonds and other securities. Each shareholder, therefore, participates proportionally in the gain or loss of the fund.

The aim of a mutual fund is to diversify and mitigate your risks. Some of the products they are exposed to are volatile. For instance the stock market.

Did you know that The FBN Nigeria Eurobond USD Fund (Retail) is up 73.64% year-to-date, although most of the performance comes from translation gain. Yes, a whooping 73.64% !!!

The fund is an actively managed open—ended Unit Trust Scheme that enables the unit holders to invest in a fixed income fund that invests predominantly/ in USD denominated debt instruments issued in Nigeria. There are many other mutual funds available.

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4.) The Stock Market
There are still some bargain finds in the Nigeria Stock Exchange considering the volatility in the market and the tepid investment climate. The near-term outlook for the market remains weak given the issues around bad loans in the banking sector and continued weakness on the macro front which should again put downward pressure on company earnings

However, some of these shares are undervalued and suited towards a long term positioning.

There are still some wins in this market. Speak to your banker to get invested.

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