A deliberate strategy is necessary when deciding where to invest N1 million in 2025.
As of November 2024, inflation was 34.60%, therefore real returns—those that surpass inflation—were more important than returns.
The necessity is highlighted by the time value of money, which states that N1 now is worth more than N1 tomorrow.
You are essentially losing money if your investment does not yield returns higher than inflation.
Liquidity, capital preservation, and risk tolerance also influence the investment climate.
However, selecting an investing channel ultimately comes down to other important factors, such as your age and financial goals.
These elements are interconnected, serve as the cornerstone of any sensible investment plan, and ought to direct every choice because seeking large returns at the expense of risks might result in big losses.
Having said that, let’s examine how different asset classes have performed, their outlooks, and which ones can present the year’s finest investment prospects.
High risk, high reward in stocks?
A diversified portfolio including equities from the oil and gas, insurance, and banking sectors, including companies like Seplat, Conoil, and Aradel, would be the best location to put N1 million in 2025.
The “buy low, sell high” strategy offers a chance to profit from the sector’s possible recovery and expansion, even though banking stocks did not do as well in 2024 as they did in 2023.
There aren’t many asset types in Nigeria that provide positive inflation-adjusted returns given the present rate of inflation.
But stocks have shown out to be a noteworthy exception. Despite difficult economic circumstances, the Nigerian Exchange (NGX) demonstrated exceptional resiliency in 2024.
The All-Share Index (ASI) outperformed the inflation rate with an outstanding year-to-date (YtD) increase of 37.65%.
Interestingly, over 70 equities in 2024 produced year-over-date returns that were higher than the inflation rate in November 2024, underscoring their reputation as inflation-protected investments.
Similar results were seen in 2023, when about 91 equities beat the 28.92% inflation rate.
With dividend yields ranging from 2% to 12%, these equities also give investors an extra incentive by fusing income creation with capital appreciation.
But stocks are notoriously erratic. A bull market year does not mean that it will happen again.
However, for investors prepared to bear short-term volatility, stocks can provide substantial gains.
50% of the N1 million should go toward a diverse portfolio with an emphasis on high-growth industries for younger, risk-tolerant investors.
ETFs: Limited upside or diversified exposure?
Exchange-traded funds are an additional asset class to take into account. By distributing risk and offering exposure to a variety of securities, exchange-traded funds (ETFs) present an alluring compromise. Currently, the NGX has twelve ETFs.
For example, investors can profit from sector-wide trends by investing in the Vetiva Banking ETF, which replicates the performance of the banking industry.
Nonetheless, the performance of the underlying assets is intrinsically linked to the returns of exchange-traded funds. The poor performance of the banking sector index during the first half of 2024 was reflected in the Vetiva Banking ETF’s -6.14% return.
Its remarkable 109% year-to-date return in 2023 stands in stark contrast to this, demonstrating how sector-specific ETFs can perform poorly in difficult market circumstances.
Considering these elements, investing the full N1 million here puts you at risk, particularly in industries that are unstable or performing poorly. It can, however, provide a positive real return.
Investments with fixed incomes: a reliable but constrained choice
For cautious investors, fixed-income securities such as Treasury Bills, Commercial Papers, and FGN Bonds are essential.
Due to rising interest rates, these investments offered alluring yields of 20–30% in 2024. For instance, the average yield on Treasury Bills ended the year at 25.5%, while the yield on FGN Bonds was 19.75%.
“The fixed income market returns remained elevated with money market and bond yields at 20% level by year-end as FX volatility and Naira depreciation led to an increased appetite for Dollar denominated investments,” said Busola Jejelowo, CEO of Stanbic IBTC Asset Management, in a statement.
The aggressive 875 basis point interest rate hikes by the Central Bank of Nigeria increased fixed-income returns and attracted a lot of investor interest.
Nevertheless, these returns only marginally exceeded inflation, which in November 2024 was 34.60%, leading to either negative or limited real returns.
Furthermore, rising rates in 2024 might turn around in 2025, which might lower yields and cause mark-to-market losses on current assets.
Fixed-income investments are ideal for stability and steady cash flow, but they may not generate real returns in a high-inflation environment.
A better strategy is not to invest the N1 million in fixed-income investment but to adopt a diversification strategy of allocating about 30%.
Mutual Funds
If the prospective investor has a low-risk appetite, then mutual funds are also an option to consider with a low-risk appetite.
There are money market mutual funds, equity mutual funds, fixed-income mutual funds, Dollar mutual funds, real estate investment trust funds, etc.
They are professionally managed and offer the opportunity to diversify across different financial markets.
But then let us look at the return in 2024. The return on mutual funds hovered between 7.5% – 38% for the year. For instance, Stanbic IBTC Dollar funds, Money Market Funds, and Equity funds generated a return of 7.5%, 21%, and 38% respectively for the year.
While some funds delivered strong returns, many failed to outpace Nigeria’s inflation rate, leading to negative real returns for investors in lower-performing funds.
For instance, Securities Exchange Commission funds’ valuation report as of December 2024, shows that the equity mutual fund has an average YtD gain of 29% with Halo Equity Fund posting as high as 87% YtD return.
Mutual funds are a strong choice for investors seeking professional management and diversification with varying risk appetites.
However, selecting the right type of fund is critical to achieving inflation-beating returns.
High-performing equity funds or mixed funds may be more suitable for growth-focused investors, while money market funds provide stability for conservative investors.
Overall, there are no one-size-fits-all investment strategies in 2025. Based on key considerations, a diversified portfolio offers the best chance of achieving real returns while managing risks:
50% in equities for high-growth potential, focusing on resilient sectors.
30% in fixed-income securities for capital preservation and predictable income.
20% in ETFs or mutual funds for diversification and professional management.
