Sometimes you may have some idle cash that you are not ready to use anytime soon.
Idle cash is money that is redundant, not earning interest or increasing in the value.
Why must you keep such idle cash in a strong room in your house?
Suppose there is a fire outbreak that can destroy the cash you kept at home. Where do you go from there?
Does it even make any economic sense to keep your idle cash in a bank savings account either?
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?
There are a number of investment opportunities here and there, especially the stock exchange.
For a start, below are 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 of a company, you should ensure that the company quoted on the stock exchange.
Secondly, ensure that the shares are traded on the floor of the Stock Exchange.
There are many benefits that can accrue to you if you invest in Ordinary Shares.
Some of them are:
- You automatically become one of the owners of the company, irrespective of the number of shares you hold.
- During the company’s annual general meeting you vote
- You can be voted for too.
- If the company makes profits and declares dividends, you will receive dividends two times a year.
- It can also distribute bonus share certificates to Shares holders, including you.
- You will not be required to pay for bonus shares.
- You can be allotted rights shares which are normally reserved for only existing shareholders. Although you will need to pay for the shares.
- Alternatively, you can sell the shares allotted to you, if you so desire.
- If the price of shares appreciate and sell, you will receive Capital gains. That is the difference between the price you paid for them and the price you sold them.
- You can reinvest your dividends, thereby increasing the number of shares you hold
- Or you can fill an e dividend form, authorizing the company’s Registrars to pay your dividends straight to your bank account.
- You can have a voice in the internal running of the company, especially if you hold a large number of shares.
If the company decides to raise more funds, it can allot to existing shareholders rights share issues.
A company can offer rights issues to raise more funds from existing members instead of borrowing from the bank.
It is called rights because it is only the existing shareholders that are entitled to rights shares.
When the company allots rights shares to you, you have two options:
- You can pay for the shares, thereby increasing the number of shares you hold
- Alternatively, you can sell the shares allotted to you to anybody who cares to buy them
So, rights shares are not free. You will need to pay for them.
Ordinary shares are easy to buy or sell
You can buy ordinary shares at any time during working days.
Similarly, you can sell them whenever you want to.
In particular, you can sell them when the price rise above the price you paid for them.
If your stock broker sells your shares, you can get the money within 5 working days.
If you buy shares in a public limited liability company, there is usually a clause that protects you.
For instance if the company is facing liquidation, the company cannot ask you to bring in more money to pay off its debts.
In other words, in the worst scenario, you can only loose the money you invested in the company.
Put differently, you will not loose more than the money you invested.
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 pay dividends consistently.
- Get an accountant to help you check out the company’s shares 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 at any time you want to.
- Ask your stockbroker to recommend high performing shares to you.
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 best picks for you are:
1. Zenith Bank
2. Guaranty Trust Bank
3. United bank for Africa
4. Access Bank
#1 and #2 have the best track records of dividend payments.
They are big, strong and reliable.
For example, I bought shares from one of the above banks in March 2020 at N15 per share.
But as at the time of putting this article together, the share price rose to N27 per share: an increase of N12.
This explains why you an accountant or a stock broker to do due diligence research on any company before buy their shares.
More important, 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 any 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 than shares of companies that are barely making profits.
Investors like to put their money in blue chip companies that deliver dividends consistently to shareholders and show evidence of continual increase in revenue generation.
Another soothing fact is if you sell your shares you can get the money in 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 sell your investment and get paid in less than 5 working days
- You can start investing with as little as 5k
- And you can top up your investment in money market funds, on weekly or monthly basis, depending on your investment goals.
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 an e-account for you.
- 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 sell 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 to the bank.
Your account will be credited with the proceeds of the sale 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 offers government bonds to the public for subscription.
At the beginning of every month, the the debt management office offers bonds for subscription by the investing public.
You can subscribe through any of the licensed and authorized banks and some reputable stock brokers.
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 do not 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.
Similarly, the tenure and the date of maturity are clearly stated in the document.
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
- 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 investment but the investment will be discounted because you did not allow it to mature.
- 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 is no better time than now to start investing your idle cash.
Invest your idle cash and watch your money grow even 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.