The stock market has had its share of the ups and downs in the last 20-30 years but one interesting about the market after several global market crashes is that its benefits haven’t changed – what people refer to as a change is in their personal perception of the stock market – they always associate it with bigger risks and lower return.
In Nigeria, the perception is even at its lowest level – after 2008 crash – with some writing off the stock market from their investment options. Well! I am here to help rebuild that confidence again by sharing some of the powerful reasons you should consider the stock market again and spice your portfolio up with foreign equities which have proven to generate more returns (in price appreciation and exchange rate) than our local market.
Besides, when you consider the returns on 365-day Treasury Bills – 6% or less, bank fixed deposit, 4% – which aren’t even anywhere close to inflationary rate expectations in 2020 (12%), you would agree with me that the stock market isn’t just an option again but a must place to consider for higher returns.
Yes! The Nigeria stock market lost about 16% of its value in 2019 which is its worst in 3 decades but this doesn’t invalidate the limitless opportunities in the stock market – our economy is fragile, no clear policy direction and uncertainties – in the last 12 months, we have witnessed several policy announcements that are geared towards protecting local businesses and currency from devaluation.
Did you also know that in this same period, the Standard and Poor 500 index and Dow Jones Index surged by 29% and 23.76%, its best return since 2013? That means the stock market performance is largely dependent on investors’ perception about the strength of listed companies – If more listed stocks are perceived to offer more value in terms of price appreciation, then it is normal for the index to go up and if more stocks are perceived to be hit by slow economic growth, and policy uncertainties, then the index would shed value, just like we have seen in the NSE index.
The following are timeless reasons you should invest in the stock market:
Invest in Stocks Because Money Sitting in Savings/Fixed Account Will Lose Its Value:
When you are saving for a major project or future plan, you need to settle this hard truth – Inflation isn’t and will never be your friend. So, if you have been saving up some cash in the bank, start thinking about how inflation is already eating the purchasing power of money that is sitting in a 1-2% savings account. It would have to earn you at least 12-13% per annum to keep up with the inflation and unfortunately, there is no high yield savings account that offers such rates.
Even if you find a fixed deposit that earns a higher rate of return that surpass the historical inflation rate, your money is only tied up for the terms of the deposit which may range from 30 days to 365 days – in case you need to withdraw your money before the term ends, you will be subjected to an early withdrawal policy which will further erode your earnings.
Invest in Stocks Because They’re Easy to Invest In and Highly Liquid
If you are a new investor with a few Naira to spare, you can get started in the stock market in less than 24 hours without complex paperwork – besides, stock market investing doesn’t require millions of Naira, you can set aside the money you would normally spend and invest it on a monthly totals in your selected stock.
You need to be sure of the company you want to invest in, and if you are just starting, I have created a forum to help you connect and share investing ideas with investors like you.
Another good thing about stock is that, when you compare buying stocks to buying real estate, stocks are faster, easier and cheaper to trade where real estate requires more documentation, consultations and due diligence.
Stocks are more liquid – you can quickly turn your stocks into cash
Let’s say you had N1,000,000 invested in the stock market and you wanted to get all your money out right away, you will most likely turn the million Naira into cash and get it credited into your account. This is different from real estate which may take time and money to your asset into cash.
Invest in Stocks for Diversification and High Returns
Buying stocks allows you to diversify your portfolio and how you make more money for yourself and family – it is a known fact that the more ways you know how to make more money, the less you are at risk of getting into financial trouble.
Let’s also say you have a full-time job that pays you a salary and are looking for another source of income that wouldn’t conflict with your day job, would you still buy Treasury bill that offers 5-6% at the end of a year when you can diversify into stocks?
The summary of these reasons is that the state of the Nigeria stock market doesn’t reflect the full benefits of the stock market – A well regulated and organized stock market like the US stock exchange offers enormous wealth-generating potential. So, if you are still battling with the 2008 crisis that wiped billions of Naira out of the market, this is a new year, get new knowledge, join our investing community, engage the service of a mentor who will hold you by hand, lets you copy his portfolio while learning the ropes of stock market investing. (You can reach me for a paid mentoring program – 08084219399)
The stock market remains the best place to use the money you already have to make more money.
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