The year 2021 is still young and if you are like most financially intelligent people, you have already set your financial goals for the year – debt clearance, savings, investments and what have you?
Recently in my Financial Intelligence community, someone asked a question about the kinds of passive investments to consider that would allow one to have free time to face other things. Many suggestions were contributed. This article is a build-up on some of the suggestions that were raised during the discussion.
If you choose not to invest your money, you are missing out on opportunities to increase your financial worth. Obviously, you have the potential to lose your money in investments, but if you invest with adequate financial intelligence, the potential to gain money is higher than if you never invest.
People invest for several reasons including retirement, reaching certain financial goals, earning higher returns, starting or expanding a business, supporting others or being a part of a new venture. Whatever the reason, you need sufficient knowledge of these 12 Smart investments to inform your decision of the vehicle to use.
1. Crypto Investment.
Most recently, there has been a lot of noise around cryptocurrency investment. According to Investopedia, cryptocurrency is a digital or virtual currency that is secured by cryptography, which makes it nearly impossible to counterfeit or double-spend. You can use them to buy goods and services.
Investing in Crypto is equivalent to exchanging money in a foreign county. The difference is that these digital assets are global and the price fluctuates based on the demand or it in the blockchain. Just like real currencies, cryptocurrencies generate no cash flow on their own unless it moves.
For you to make money in Cryptocurrencies, someone has to pay more than the currency than you did when buying it. People invest in the promise that the price or value will go up in future. So one way to invest in cryptocurrency is to buy certain coins, hold them long enough for the value to increase and resell to recoup the capital gains.
Another way to invest in Cryptocurrency is by what is known as Crypto Staking which, according to Maas Adebayo, a Cryptocurrency Investor and a Business Mogul who is also a FINTELite, is like keeping your money in a fixed deposit in your local bank but it pays more percentages compared to that of the banks, up to 10% monthly.
“Crypto staking can be described as holding interest over some amount of money fixed in your bank account. In this case, the coins are locked in a wallet for a period of time and as a reward, more coins are added to the wallet. The more a person stakes their coins, the additional coins they get.
“While staking cryptocurrencies is often compared to the mining of bitcoin and other early cryptocurrencies, it is in many ways more similar to dividend-paying shares.
“If you own cryptocurrency which pays staking dividends, you get the staking dividend no matter what, and the potential profit and risk from the value of the cryptocurrency and the dividend going up and down,” Maas explained.
However, Mass cautions, “Staking and cryptocurrencies investment involves a high degree of risk and there is always the possibility of loss, including the loss of all staked digital assets…You must have done your analysis very well before investing on a coin.”
Therefore, if you have somebody to spare and you have a high-risk tolerance, you might want to take a look at Cryptocurrencies because it pretty much gearing up to be the currency of the future. Read more about here and here.
2. Real Estate Investment
Real estate could be any property comprised of land and any structure(s) or natural resource on it, including water bodies and mineral deposits, as well as any flora or fauna.
This investment is perhaps one of the oldest types investment in the world. It involves the purchase, ownership, management, rental and/or sale of real estate for profit. This profit can either come in the form of capital gains or cashflow.
This investment could be as simple buying landed or built property, hold and resell for capital gains OR rent for cashflow. In addition, this Nairametrics article offers various other ways you can invest in real estate such as real estate investment trust, land flipping, real estate agent, property development, open space leasing, franchising and building/renting rental properties.
3. Passive Forex Investment
Forex, also known as foreign exchange or FX trading, is the conversion of one currency into another for a variety of reasons, usually for commerce, trading, or tourism. If you have travelled to another country, you have probably participated in a forex transaction.
Forex or currency trading is a global market that’s incredibly liquid, with an immense daily trading volume. It is one of the most actively traded markets in the world, with an average daily trading volume of $5 trillion. This market is explained as a network of buyers and sellers, who transfer currency between each other at an agreed price.
In other to succeed as a forex trader you’ll need to invest a lot in your own education and be patient enough to practice with a demo account. Although not as volatile as crypto investment, the foreign exchange market can be very risky especially when you are an amateur.
However, you can choose to invest with a forex trading company who will trade with your money and give you monthly returns which could range from 15% to 30% based on your capital and terms of agreement.
4. Stock Market
Investment in the stock market is another relatively safe way to grow your money compared to forex investment. Here, instead of buying countries’ currencies, you buy company shares with the expectation of cash flowing annual dividends or capital gains.
The stock market refers to public markets that exist for issuing, buying, and selling stocks that trade on a stock exchange or over-the-counter. Stocks, also known as equities, represent fractional ownership in a company, and the stock market is a place where investors can buy and sell ownership of such investible assets.
As a stock market investor in Nigeria, you can buy and trade both local and foreign stocks using digital platforms like Robinhood, Risevest, Chaka and Bamboo.
5. Agrotech Crowdfunding Platforms
Agricultural Technology (agrotech) refers to the use of technology in farming and other agricultural processes. With an ever-growing population and the increasing need for food, technology is being used today to massively increase farm output, to make predictions, to access funding, and so much more.
No matter what happens, there will always be a demand for food. If you are someone that is attracted to agriculture but you lack the time, farmland or expertise to plough the soil or shovel chicken droppings, technology has made it a lot easier to still reap from this multi-trillion dollar industry. Crowdfarming, a form of crowdfunding Agriculture has become a popular way to invest in the industry.
Using fintech apps, small agriculture-based businesses come up with investment options and packages where everyday individuals can invest a portion of their funds at specific interest rates and fixed tenures. These companies then use invested funds, leveraging economies of scale to carry out their agricultural processes and ultimately split the gains with the investors – and many of them are not nearly complex.
You can make good returns on investment by FarmCrowdy, ThriveAgric, Porkvest, Payfarmer, Growcropsonline, Farmally, Farmfunded, Smartfarm and lots more.
6. Intellectual Property
In today’s increasingly knowledge-based economy, companies and individuals alike are diligent when it comes to identifying and protecting intellectual property because it holds such high value.
Intellectual property (IP) is a category of property or investment that includes intangible creations of the human intellect. It is a broad categorical description for the set of intangible assets owned and legally protected by a company from outside use or implementation without consent. An intangible asset is a non-physical asset that a company/ or individual owns.
The most well-known types of IP are copyrights, patents, trademarks, franchise, and trade secrets. All these are means of protecting your intellectual property and gaining value from it as a form of investment. Once protected from infringement, your IP can earn you royalties, licensing fees, and litigation compensation for its infringement for a long time.
This article and this one elaborate more on the different types of IPs and how you can make money from them.
So if you’re talented, you can write a book, sing a song, produce a movie or invent something and patent it. You can receive royalties for life without working. Intellectual properties also includes software, websites as well as works by other creatives such as artists, musicians, art collectors, etc.
7. Small Business
This is an often overlooked type of smart investments, perhaps because it is so common and the returns on investment isn’t always well defined.
Starting a small business in any niche you are comfortable with and that has a market demand can be a very safe, secure and smart investment if you know your onions. This is one investment where you have absolute oversight of the metrics because you control the marketing, sales, financials.
If you want to play a more passive role, you can build your small business, grow and incorporate it and then make it independent of you by setting up a competent management team. The business will generate cashflow for you as long as it exists profitably or you can decide to exit it and cash out.
8. Paper Assets: FGN Bonds, Treasury Bills, Commercial Papers
Paper assets investments literally are pieces of paper that define ownership of an asset. They are usually risk free, with guarantees (and some come with insurance against loss). This means that there is little or no chance of losing your initial capital. Paper assets can be used as collateral to seek and secure loans from the bank.
Some examples of investing paper assets prove to be Treasury Bills, stocks, currencies, bonds, money market accounts (money market funds), mutual funds, Exchange Traded Funds (ETF), insurance plans and similar types of investments.
- Treasury Bills are a short term investment securities issued by governments to finance national borrowing requirements.
- FGN Bonds are debt securities (liabilities) of the Federal Government of Nigeria (FGN) issued by the Debt Management Office (DMO) for and on behalf of the Federal Government. The FGN has an obligation to pay the bondholder the principal and agreed interest as and when due.
- A mutual fund is a type of financial vehicle made up of a pool of money collected from many investors and professionally managed to invest in securities like stocks, bonds, money market instruments, and other assets.
- ETFs offer the diversification benefits of mutual funds while also giving the ease of stock trading. It is a fund that can be traded on an exchange like a stock, which means they can be bought and sold throughout the trading day (unlike mutual funds, which are priced at the end of the trading day).
- Commercial Papers is a commonly used type of unsecured, short-term debt instrument issued by corporations, typically used for the financing of payroll, accounts payable and inventories, and meeting other short-term liabilities. It usually has a fixed maturity of rarely more than 270 days.
Government bonds or treasury bills are the safest assets to invest in. Outside these, the risks begin to increase.
9. Life Insurance policies
Life insurance (or life assurance) is a contract between an insurance policy holder and an insurer or assurer, where the insurer promises to pay a designated beneficiary a sum of money (the benefit) in exchange for a premium, upon the death of an insured person (often the policy holder). Depending on the contract, other events such as terminal illness or critical illness can also trigger payment.
It is typical for the policy holder to pay a premium, either monthly or as one lump sum per annum. Life Insurance guarantees financial protection by law for the family of an employee in case of death or accident.
Although, it’s not very popular in this part of the world, some people see life insurance as a financial safety net, giving you the peace of mind that your family will be able to fund themselves should you die unexpectedly. It can be looked upon as an emergency measure to make sure they can keep up with the mortgage payments and other bills.
More so, life insurance, largely because of its tax benefits, can also be used as an investment. Here, your insurer invests your monthly premiums, and your eventual pay-out is affected by how well the investments perform.
10. Pension Funds
Similar to life insurance policy mentioned above is Pension Funds which refers to any plan, fund or scheme which provides retirement income. These funds are investment pools that pay for workers’ retirements and they are paid for by either employees, employers, or both. Certain big corporations and all levels of government provide pensions and other forms of retirement benefits such as gratuity. Investing in a pension fund could be viable form of investment for when you are old and can no longer work.
Pension fund assets need to be prudently managed to ensure that retirees receive promised retirement benefits. For many years this meant that funds were limited to investing primarily in government securities, investment-grade bonds, and blue-chip stocks. They increasingly invest in a variety of asset classes including private equity, real estate, infrastructure, and securities like gold that can hedge inflation.
In Nigeria, we have the Contributory Pension Scheme which requires pension funds to be privately managed exclusively by licensed Pension Fund Administrators (PFA). The main functions of the PFA are to open Retirement Savings Account (RSA) for employees; invest and manage pension fund assets; payment of retirement benefits and accounting for all transactions relating to the pension funds under their management.
11. Venture Capitalism
A venture capitalist is a person or company that invests in a business venture exhibiting high growth potential, providing capital for a startup or expansion, in exchange for an equity stake. This could be funding startup ventures or supporting small companies that wish to expand but do not have access to equities markets.
The majority of venture capital comes from professionally managed firms. These persons or firms have money available for investment in startup companies and small businesses with a high potential for growth. To be a venture capitalists, you need a lot of money and knowledge in the area you want to invest in because it can get risky.
To get started, be on the lookout for promising businesses and invest/buy a stake in them either via debt or equity. The business owners work to grow the value of the company while you cash out annually based on the company’s turnover or when it goes public or gets sold.
A commodity is a basic good used in commerce that is interchangeable with other commodities of the same type.
Commodities are most often used as inputs in the production of other goods or services.
Traditional examples of commodities include Agricultural (grains, coffee, livestock) Energy (crude oil, natural gas, electricity) and Metals (gold, silver, copper). Supply, demand, and geopolitics all affect commodity prices.
Investors and traders can buy and sell commodities directly in the spot (cash) market or via derivatives such as futures and options. As the demand for goods and services increases, the price of goods and services rises, and commodities are what’s used to produce those goods and services. Because commodities prices often rise with inflation, this asset class can often serve as a hedge against the decreased buying power of the currency.
Commodity investing involves investing in raw materials that can be categorized into hard commodities that are extracted, such as oil and gas, or soft commodities that are grown, such as crops and livestock. There are several different ways to invest in commodities. This capital.com article gives 4 interesting ways you can invest in commodities.
To get rich, you have to be making money while you’re asleep.David Bailey
To wrap up, passive investments are the smartest way to invest because they enable you to earn money while you’re busy doing other things. Take your time to study each of them in-depth. Only then can you confidently make your choice on which smart investment to add to your portfolio.
Are you already investing in any of these assets? What has been your experience and lessons learned thus far? If you are an amateur, which of these smart investment options catches your fancy most? Which are you eager to invest in? I really want to hear from you. Kindly share your thoughts in the comments below.