The following are 3 Simple Ways To Invest Your Idle Cash To Receive High Returns:
- Ordinary Shares
- Market money Funds
- Government Bonds
Sometimes you may have some idle cash that you are not ready to use anytime soon.
Why must you keep such idle cash in a strong room in your house?
Does it even make any economic sense to keep your idle cash in a bank savings account?
How much interest will the bank pay you on savings account?
Why not invest your idle cash in profitable securities that will yield you high returns?
On the stock exchange, there a large array of companies you can invest in.
Beyond that, you can invest your idle cash within the country or outside the country.
For a start, the following are just 3 simplest ways you can invest your idle cash.
Invest idle cash: ordinary shares
You can invest your idle cash in ordinary shares of profitable companies.
Before you invest in ordinary shares, you should ensure that the company’s stocks are quoted and traded on the Stock Exchange.
The benefits of investing in ordinary shares include, among others:
- You automatically become one of the owners of the company, irrespective of the number of shares you hold.
- You have the right to vote during the company’s annual general meetings
- You can also be voted for during annual General meetings.
- Dividends will be paid to you two times in a year, if the company declares dividends.
- The company can issue you bonus (free) shares if it has a large balance in its Share Premium Account
- You do not need to pay for bonus shares
- You automatically qualify for Right’s (script) issue of shares if the company decides to restructure its capital.
- Rights issues are allocated to you, you can sell it if you so desire
- Right’s offer of shares are only available to existing shareholders.
- If the price of shares appreciates, you will benefit by way of Capital gains.
- You can reinvest your dividends, thereby increasing the number of shares you hold
- Or fill an e-dividend form that will enable the registrars to pay your dividends straight into your bank account.
- Ordinary shares are easy to buy or sell
- Even if you do not intend to hold the shares for keeps, you can sell them when the prices rise about the cost at which you bought them.
- In the event of liquidation, you will not be required to pay more money to pay off the company’s debts.
- Should the company shut down, you will not lose more than the money you invested.
- You can have a voice in the internal running of the company, especially if you hold a large number of shares
Invest idle cash: how to invest in ordinary shares
If you want to invest your idle cash in ordinary shares of any company, you need to:
- Look out for companies that has been paying dividends persistently.
- Get an accountant to help you check out the company’s share prices and dividends history.
- Look for an experienced, reliable and registered stock broker
- Open shares brokerage account with your chosen stockbroker.
- Give the stock broker instructions to buy or sell your shares, as you deem desirable
- Ask your stockbroker to recommend shares you can buy.
For best results, you can allow your investment in ordinary shares to remain invested for, say, 5 years and above.
Bonus: If you want to invest in ordinary shares, my recommendations for you in terms of profitability and stability are:
1. Zenith Bank Plc.
2.Guaranty Trust Bank Plc.
4. UBA Plc.
#1 and #2 have the best track records of dividend payments. They also provide good prospects for bonus shares.
For example, I bought shares from one of the above banks in March 2020 at N15.00. But as at the time of putting this article together, the share price is N27.00 per share.
Most importantly, you should not invest all your idle cash in the shares of one company.
This is because if you put all your investment in one company and the company fails, you will have burnt your fingers.
In other words, you need to spread your risks so that if one company performs poorly, you can leverage on the performance of the other companies to optimize your bottom line.
How to sell ordinary shares
When you want to sell your ordinary shares, you can just give your stock broker instructions to sell your shares for you.
You can sell all or a portion of your shares from your investment portfolio.
The prices of ordinary shares move up and down on daily basis.
Nevertheless, a stock broker knows the best time to sell your shares for you.
Note that shares of profitable companies are much easier to sell compared to shares of companies that are barely making profits.
This is because everybody wants to put his money in shares that can be easily bought, sold and yield dividends.
The good news about selling ordinary shares is that you can get the proceeds from the sale of your shares in just a matter of days.
Invest idle cash: money market funds
This is another easy and less risky way you can invest your idle cash.
The following are the main advantages of investing in money market funds:
- The process is easy
- It is also easy to redeem your investment and get paid in less than 5 working days
- You can start investing with as little as 5k
- And you can top your investment in money market funds, on weekly or monthly basis, depending on how much money you want to invest.
Invest idle cash: how to invest in money market funds
If you want to invest your idle cash in money market funds, the procedure is as follows:
- Go to any authorized Money Market Funds Manager (mainly banks)
- Ask for money market funds investment form
- Fill out the required fields, stating your account details.
- State how much money you want to invest.
- The bank will open and give you an e-account number.
- You will then pay the money to the bank cashier
- And collect your teller
How to redeem investments in money market funds.
Should you desire to redeem the investment, the following are the procedures:
- Ask for money market funds redemption form
- Fill out the required fields
- State the bank and account number where you want the money to be paid into
- Fill in your e-accounts number
- Submit your form
Your account will be credited with the proceeds of the redemption within 3-4 working days.
Personally, I use StanbicIBTC Bank, the award winning mutual funds managers.
Invest idle cash: federal govt of Nigeria bonds
The third place you can invest your idle cash without any risk, is in Federal Government of Nigeria bonds.
In Nigeria, the Debt Management Office is the body that sells government bonds to the public, through duly licensed institutions, usually banks.
At the beginning of every month, the Debt Management Office announces offer of new bonds for subscription by the public.
When you buy government bonds, the debt management office will issue you a certificate acknowledging that you loaned the money to the government.
The best part is that the FGN bonds are traded on the floors of the Nigerian stock exchange.
What is federal Government of Nigeria bond?
In case you don’t know, bonds are instruments the federal government uses to raise funds from the investing public to execute specific projects.
The interest you will receive on your investment is fixed at the beginning of the offer.
The terms of issue cannot be reviewed during the tenor of the bonds.
The tenor is for a minimum of 2 years.
When the bond matures, the government will pay you both the principal and the interest.
If you invest in government bonds, you will enjoy the following benefits:
- The loans is guaranteed by the Federal Government of Nigeria
- It is the safest investment.
- That means that the government cannot default in paying you
- Interest on bonds will be paid to you every six months
- The minimum investment is N5,000 in the first instance
- Thereafter, you can make subsequent investments in multiples of N1,000
- At due dates. you will be issued with a warrant for interest payment
- You can pay the interest you receive into your bank account.
- If you so desire, you can sell your bonds during the tenor of the subscription but that will be at discounted rate
- For more info, you can visit the Standbicibtc Stockbrokers Limited.
Most importantly, interest payments you receive every six months can enable you to meet some of your urgent financial obligations or needs.
Comparison of bonds and savings account
By way of comparison, in any of the above investment options you will earn returns higher than what the bank will pay you as interest.
The banks are smart enough to loan your money to business owners at very high interest rates.
They later turn round to pay you peanuts as interest on your savings account.
In other words, the banks are using the money in your savings account to make high profits.
Therefore, you can see that it does not make any economic sense for you to leave large idle cash at home or in a bank savings account.
Finally, if you have not started investing before, there can be no better time than now to start investing your idle cash.
Invest your idle cash and watch your money grow while you are asleep. You will be glad you did.
By Samuel Ijenhi
B. Sc. Accounting (University of Benin)
Benin City, Nigeria
Founder: Ijenhi Business Solutions.