Explore a comprehensive guide to Invest Your July Salary Smartly like Treasury bills, ETFs, Eurobonds, and mutual funds.
As the adage goes, an investor is only as good as the assets they invest in.
As investors, our returns are completely dependent on the investments we make.
Choosing the right investment is like picking the right horse at a race – pick a losing one, and you might end up with nothing.
However, identifying the right investments can often feel like a gargantuan task.
The inherent risk and lack of guarantees associated with investments can be intimidating.
For example, those who pick stocks are not guaranteed returns, as their chosen asset may not increase in value during their investment period.
We witnessed numerous opportunities for investors in the first half of the year, resulting in a notable surge in global benchmark indices.
The S&P 500 is up by 18.18% year-to-date, NASDAQ by 34.24%, FTSE100 by 3.23%, NIKKEI 225 by 25.54%, and NGX ASI by 10.70%.
Conversely, certain assets have seen a decline in the short term, following the gains in the first half of the year.
For instance, the Gold spot price fell from $2078 per ounce in May to around $1948, a 6.3% decrease.
Cryptocurrencies like Bitcoin and Ethereum have also experienced a dip after reaching their intra-year highs.
Bitcoin, specifically, dipped by 5.5% from its June high of $31,035 to $29,300.
Could these be indications of a weakening asset following an impressive first half, or the resumption of the bearish sentiments experienced last year?
In any case, it’s generally unwise to make full investment positions following a significant rally.
A more effective approach is Dollar cost averaging, where investments are made at regular intervals, instead of a lump sum investment.
Smart Moves: Where to Invest Your July Salary
Investing a portion of your salary, typically between 10-30%, is highly recommended by financial experts.
It’s also prudent to only invest money that you’re prepared to lose.
Considering these parameters, here are four potential asset classes to consider for your July salary investment:
1. Treasury Bills
Often seen as one of the safest asset classes, Treasury bills provide better returns than typical savings interest. For instance, the Nigeria 364 days treasury bills offer a rate of 10.588% per annum.
As Treasury bills are backed by the government, they present a minimal risk of default, making them an ideal choice for cautious investors.
2. Exchange-Traded Funds (ETFs)
ETFs are a collection of similar assets that investors can buy into all at once, bypassing the need to select individual assets.
An example is the Energy Select Sector SPDR Fund (XLE), which comprises the top energy stocks in the U.S. market.
Investing in ETFs like XLE simplifies the process and is suitable for those without experience in stock picking.
The XLE boasts a three-year return of 38.65%, while the Technology Sector Select SPDR fund has a year-to-date return of 43.61%.
Eurobonds are debt instruments denominated in a currency different from the home currency of the issuing country or market.
For example, the Nigerian Eurobond issued by the Federal Government is in U.S. dollars, and the yields are also in dollars.
This is an excellent way to hedge your assets against Naira depreciation.
Given the Naira’s current volatility against the dollar, investors seeking stability should consider diversifying their portfolio with Eurobonds.
4. Mutual Funds
Mutual funds are specialized financial vehicles that aggregate assets from shareholders to invest in securities like stocks, bonds, and other money market instruments.
These funds are typically managed by professional investment firms and banks.
In Nigeria, firms like Stanbic funds management and United Capital Asset Management offer funds with yields between 8-15%.
However, remember that investing in mutual funds carries risk, and returns are not guaranteed.
In the current economic climate, it’s advantageous to have some form of investment generating passive returns.
While they may not replace your main income, they could help cover some bills or supplement your earnings.
The investment classes mentioned above are excellent places to start.
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1. What percentage of my salary should I invest?
Experts recommend investing anywhere between 10-30% of your salary.
2. Which assets are safe for investment?
Treasury bills are considered one of the safest asset classes, offering better returns than traditional savings accounts.
3. What are Exchange-Traded Funds (ETFs)?
ETFs are a basket of similar assets that an investor can buy into at once, eliminating the need to pick individual assets.
4. What is a Eurobond?
A Eurobond is a debt instrument denominated in a currency other than the home currency of the country or market in which it’s issued.
5. Are mutual fund investments risk-free?
No, mutual fund investments carry risks, and returns are not guaranteed.