Failing business
Author and personal finance expert, Mr. Usiere Uko, concludes his article on ways to invest in the money market
In this concluding part of how to invest in the money market with low funds, I will address the last set of questions arising from the first two parts of the article, which is essentially going into more details for further clarity.
The article raised a lot of questions and feedback which has made me more keenly aware of a segment of the population that is often overlooked when it comes to wealth management – the low income earners. Some banks and investment houses or asset managers often overlook this segment of the population while focusing on high net worth individuals. Individually, low income earners bring in little, but if you capture and aggregate the sheer volume, it may surpass what the high net worth individuals bring in. This was the experience of Google and Amazon among others, when they eliminated all entry barriers and allowed everyone to come in. They discovered that in the overall total, they made more money from the masses than they did from the ‘big guys’. This phenomenon is known as the long tail.
Choose your bank
Some banks require high minimum account opening balances, sometimes as high as N50, 000. Many require a minimum amount of N1m naira for fixed deposits. Some stock brokers require an opening balance of N5m. This has created the impression that investment is not for the poor. This is not the case. There are banks that create products for low income earners. If you are a low income earner but stuck with a ‘big man’ bank, then it is your job to find your level. You are not married to your bank.
Most people do not choose their banks based on due diligence; it is chosen based on proximity or chosen for them by their employers directly or indirectly. Directly, some employers advise employees on the banks they should open their salary account because those are the banks they have accounts with. Indirectly, if your employer banks with bank A and you are with bank B, there may be a delay in getting your salary. The salary schedule first goes to bank A, and then remitted to bank B. Sometimes bank A sits on it for a couple of days, to encourage you to come over. When you get tired of getting your salary late, you eventually give in. But this is just your salary account. You can keep your salary account and choose the bank where you will save and invest with. This means you need to ask questions, don’t just depend on hearsay. In these days of targets, many bank marketers come to you, or are willing to come to you. Find out what the bank offers before you open the account. All banks are not equal.
Calculating your interest income
One of the frequently asked questions I receive is how to calculate earned interest. I had assumed everyone understood this from simple interest. If you cannot calculate your potential earnings from various investment options, what you are doing will not make sense to you. If you don’t have this issue, you can skip this section.
When you are told the offered interest rate is 12 per cent, it is per annum (per year). Let’s say you want to invest N100,000 in 91 day treasury bills at 12 per cent, this is how you calculate your interest. Using the formula for simple interest:
Simple interest I = P x T x R
100
Principal is the amount you are investing, time is the duration in years while rate is the rate you are given divided by hundred. In our example, you are investing for 91 days, so:
T = 91/365 (as there are 365 days in one year).
If you are investing for a whole year, then T = 1.
So for your N100, 000 investment in 91 day Treasury Bills:
Your earned interest: I = 100,000 x 91 x 12 = 2,991.8
365 x 100
This amounts to N2, 991.8. Many may consider this peanut. If you are humble enough to respect the peanuts and build on it with focus and consistency, you will be amazed at the size of the peanut pyramid in years to come.
Money market vehicle to start with
If all you have is N10, 000, you have limited options but that is not an excuse to sit on it and end up spending it. You still have options. There are places (banks etc) you can buy treasury bills at the secondary market with N10, 000. There are money market funds that accept a minimum of N5, 000. If you have N100, 000, you have a bit more options. It is your choice to make. Which one to start with depends on what you want to achieve (financial goals).You may need income from your investment or you simply want to grow your principal through compound interest (not touching your interest). If you are looking for higher rates and you are willing to leave the money alone from three months up to a year, you may want to consider treasury bills which are tax free. The important thing is to know what your options are and make an informed decision. Don’t ask someone to decide for you. Learn how to do it yourself. That is the whole essence of financial education – being in the driver’s seat of your finances.
The qualification for investing in the money market by yourself is the ability to read and understand English language, have a signature (some places accept thumb print), have a fixed address, have some money saved up and you are in business. If you want to go far, then you need to keep learning and growing. If I have not answered your questions to your satisfaction or you are interested in my upcoming seminar, you can send me an email or text.
It is important that you make a move. Call your account officer or go over to the bank. Do something. Since money market investments are risk free, you can learn on the job without losing money. If you have a desire to start, just do it. You have thought and planned enough, you have given yourself enough excuses. You cannot sit at home and know what will happen. The journey of a thousand miles, as they say, starts with a step. Take that step today. Safe journey.
For questions and comments, you can contact him at usiere@gmail.com. Follow him on twitter@usiere, 08106788187 text only
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