Setting the right financial goals early in the year is important. It helps you build sustainable wealth and increases your net worth over time. However, no time is too late to start. All things being equal, you should be richer by this time next year and well on your way to total financial freedom.

Why invest?

Investing can provide you with another source of income, help fund your retirement or even get you out of financial crises in the future. Above all, investing helps you grow your wealth, allowing your financial goals to be met and increasing your purchasing power over time. It enables you to have a comfortable and safe future. No time is too late to invest.
It is advisable to invest anytime some money comes handing. It is even a wiser decision to let that money work for you and grow over time.

You have many ways to invest, from very safe choices as Certificates of Deposits and money market accounts to medium-risk options such as corporate bonds, and even higher-risk picks such as growth stocks. That is great news, because it means you can find investments that offer a variety of returns and fit your risk profile. It also means that you can combine investments to create a well-rounded, diverse and safer portfolio.

What to consider

Risk tolerance and time factor each play a big role in deciding how to allocate your investments.
Conservative investors or those nearing retirement may be more comfortable allocating a larger percentage of their portfolios to less-risky investments. These are also great for people saving for both short and intermediate-term goals.

Those with stronger wills and workers still accumulating pays are likely to fare better with riskier portfolios, as long as they diversify. However, you have to do your homework and shop around for the types of accounts that fit both your short- and long-term goals.

If you are looking to grow your wealth, you can opt for lower-risk investments that pay a modest return or you can take on more risk and aim for a higher return. Below are a range of investments with varying levels of risk and potential return.

Here is the overview of some of the best investments in 2020 where you can build sustainable wealth in the year

  1. Certificates of deposit
  2. Money market funds
  3. Treasury securities
  4. Government bond
  5. Dividend-paying stocks
  6. High-yield savings account
  7. Rental housing

1. Certificates of Deposit

Certificates of deposit, or CDs, are issued by banks and generally offer a higher interest rate than savings accounts.

These are Government insured time deposits and have specific maturity dates that can range from several weeks to several years. Because they are time deposits, you cannot withdraw the money for a specified period of time without penalty.

With a CD, the financial institution pays you interest at regular intervals. Once it matures, you get your original principal back plus any accrued interest.

Because of their safety and higher payouts, Certificates of Deposits can be a good choice for retirees who do not need immediate income and are able to lock up their money for a little while. However, there are many kinds of CDs in which you can take advantage of the higher rates.

Risk: Certificates of Deposits are considered safe investments though they do carry reinvestment risk which is the risk that when interest rates fall, investors will earn less when they reinvest principal and interest in new CDs with lower rates. The opposite risk is that rates will rise and investors won’t be able to take advantage because they have already placed their money into a CD.

You may consider investing money in CDs of varying terms so that all your money is not tied up in one instrument for a long time. It is important to note that inflation and taxes could significantly erode the purchasing power of your investment.

Liquidity: Certificates of Deposit are not as liquid as savings accounts or money market accounts because you tie up your money until the CD reaches maturity often for months or years. It is possible to get at your money sooner, but you will often pay a penalty to do so.

2. Money Market Funds

A money market account is an NDIC-insured, interest-bearing deposit account. They typically earn higher interest than savings accounts and require higher minimum balances. Because they are relatively liquid and earn higher yields, money market accounts are a great option for your immediate commitment savings.

In exchange for better interest earnings, consumers usually have to accept more restrictions on withdrawals, such as limits on how often you can access your money.

These are a great option for beginning investors who need to build up a little cash flow and set up an urgent commitment fund.

Risk: Inflation is the main threat. If inflation rates exceed the interest rate earned on the account, your purchasing power could be diminished.

Liquidity: Money market funds are considered liquid, especially because they come with the option to write checks from the account but these are however, regulated.

3. Treasury Securities

The Government issues various types of securities to raise money to pay for projects and debts.
These are some of the safest investments to guarantee against loss of your principal.

Treasury bills, or T-bills have a maturity of one year or less and are not technically interest-bearing. They are sold at a discount from their face value, but when they mature, the government pays you full face value. For example, if you buy a N50,000 T-bill for N47,500, you would earn N2,500 on your investment.

Treasury notes, or T-notes, are issued in terms of two, three, five, seven and 10 years. Holders earn fixed interest every six months and then face value upon maturity. The price of a T-note may be greater than, less than or equal to the face value of the note, depending on demand. If demand by investors is high, the notes will trade at a premium, which reduces investor return.

Treasury bonds, or T-bonds are issued with 30-year maturities, pay interest every six months and face value upon maturity. They are sold at auction throughout the year. The price and yield are determined at auction.

Treasury securities are a better option for more advanced investors looking to reduce their risk.

Risk: Treasury securities are considered virtually risk-free because they are backed by the full faith and credit of the Government. You can count on getting interest and your principal back at maturity. However, the value of the securities fluctuates, depending on whether interest rates are up or down. In a rising rate economy, existing bonds lose their allure because investors can get a higher return from newly issued bonds. If you try to sell your bond before maturity, you may experience a capital loss.

Treasuries are also subject to inflation pressures. If the interest rate of the security is not as high as inflation, investors lose purchasing power.

Because they mature quickly, Treasury bills may be the safest treasury security investment, as the risk of holding them is not as great as with longer-term Treasury notes or Treasury bonds. Just remember, the shorter your investment, the less your securities will generally return.

Liquidity: All Treasury securities are very liquid, but if you sell prior to maturity you may experience gains or losses, depending on the interest rate factors. A Treasury bill is automatically redeemed at maturity, as is a Treasury note. When a bond matures, you can redeem it directly with the Treasury or with a financial institution, such as a bank or broker depending on where the bond is held.

4. Government bonds

Government bond funds are mutual funds that invest in debt securities issued by the Government and its agencies, such as funds invest in debt instruments such as T-bills, T-notes, T-bonds.

These government bond funds are well-suited for the low-risk investor. The funds can also be a good choice for beginning investors and those looking for cash flow.

This investment opportunity lets Nigerians lend money to the government. The interest you get depends on how long you choose to save for. Reportedly, the Federal Government savings bonds interest go up to 13%. You get paid twice a year if you choose this option.

Risk: Funds that invest in government debt instruments are considered to be among the safest investments because the securities are backed by the full faith and credit of the government.

However, like other mutual funds, the fund itself is not government-backed and is subject to risks like interest rate fluctuations and inflation. If inflation rises, purchasing power can decline. If interest rates rise, prices of existing bonds drop; and if interest rates decline, prices of existing bonds rise. Interest rate risk is greater for long-term bonds.

Liquidity: Bond fund shares are highly liquid, but their values fluctuate depending on the interest rate position.

5. Dividend-paying stocks

If you’ve been considering investing in the stock market for a while, but have not yet opened an account and started contributing, make 2020 the year you turn intentions into real money.

Your stock market investments can become a little safer with stocks that pay dividends. Dividends are portions of a company’s profit that can be paid out to shareholders, usually on a quarterly basis. With a dividend stock, not only can you earn on your investment through long-term market appreciation, you will also earn cash in the short term.

Buying individual stocks, whether they pay dividends or not, is better-suited for intermediate and advanced investors. Do not waste time trying to get into the market at the perfect time. A lot of people lose confidence because they do not get the returns as quickly and bountifully as hoped. Patience is an important lesson to learn for young investors. Success takes time.

Risk: As with any stock investments, dividend stocks come with risk. They are generally considered safer than growth stocks or other non-dividend stocks, but you should choose your portfolio carefully. Make sure you invest in companies with a solid history of dividend increases rather than selecting those with the highest current yield. That could be a sign of upcoming trouble.

Liquidity: You can buy and sell your stock on any day the market opens, and quarterly payouts, especially if the dividends are paid in cash, are liquid. Again, in order to see the highest performance on your dividend stock investment, a long-term investment is key. You should look to reinvest your dividends for the best possible returns.

6. High-yield savings account

Just like a savings account earning pennies at your brick-and-mortar bank, high-yield online savings accounts are accessible vehicles for your cash.

With fewer overhead costs, you can earn much higher interest rates at online banks. As of 2020, you can find accounts paying some good percentage. A savings account is a good vehicle for those who need to access cash in the near future.

Risk: The banks that offer these accounts are Nigerian Deposit Insurance Corporation-insured, so you do not have to worry about losing your deposit. While high-yield savings accounts are considered safe investments, like Certificate of Deposit, you do run the risk of earning less upon reinvestment due to inflation.

Liquidity: Savings accounts are about as liquid as your money gets. You can add or remove the funds at any time, but like money market accounts, there are regulations limiting most withdrawal transactions.

7. Rental Housing and Real Estate

Rental housing can be a great investment if you have the willingness to manage your own properties. With the expected Compound Annual Growth Rate (CAGR) in the real estate sector put at 13.65 percent from 2019 to 2022, experts have advised housing professionals to take advantage of the 2020 budget to reduce housing deficit in the country.

To pursue this route, you will have to select the right property, finance it or buy it outright, maintain it and deal with tenants. You can do very well if you make smart purchases.

However, you won’t enjoy the ease of buying and selling your assets with a click of the mouse. But if you hold your assets over time, gradually pay down debt, and grow your rents, you’ll have a powerful cash flow when it comes time to retire.

Real Estate has the tendency to grow astronomically over a short period and there is no better news to an investor than that.

Risk: As with any asset, you can overpay for. Also, the lack of liquidity might be a problem if you ever needed to access cash quickly.

Liquidity: Housing is among the least liquid investments around, so if you need cash in a hurry, investing in rental properties may not be for you. And again, a broker may take as much as 10 percent cut off the top of the sales price as a commission.

As long as people need to live somewhere, real estate and rental houses will remain a profitable investment option. To get a quick and high return, consider major Nigerian cities like Lagos and Abuja. You can buy plots of land, wait for a while and start selling it. You can also build houses, hostels or even shopping malls and rent them out.

Bottom line

Investing can be a great way to build your wealth over time, and investors have a range of investment options from safe lower-return assets to riskier, higher-return ones. That range means you will need to understand the pros and cons of each investment option to make an informed decision. While it seems daunting at first, many investors manage their own assets.

However, the first step to investing is actually easy – opening a brokerage account. Investing can be surprisingly affordable even if you do not have a lot of money. If you happen to get maximum returns from your investments, do not forget to reinvest the returns you do get. Reinvestment is one of the keys to growing your finances over time. However, you may also seek the advise of experts.

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