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Question
Can you recommend an ETF that one can save monthly from Nigeria for the next 25 years?
Answer
ETFs, also known as Exchange-traded funds, is a basket of securities that are tradeable on the exchange. They can track the number of securities, such as indexes, sectors, commodities, and so on. It provides investors with exposure to a diversified basket of large-cap stocks. Imagine you have a big basket of different investments, such as stocks, bonds, or commodities, all bundled into one fund. Think of it as a buffet where you can choose a variety of dishes (investments) all on one plate (ETF). ETFs have been in existence since the early 1990s and are professionally managed platforms designed to give investors exposure to various securities at a lower cost. If you’re looking to invest in a Nigerian ETF, NGX- 30 Index is an ETF that tracks the Index representing the top 30 companies listed on the Nigerian Stock Exchange. It would help if you also considered investing in foreign ETFs to take advantage of the stable currency factor, like the Vanguard Real Estate Index ETF (VNQ).
I get it now, but how do I go about investing in them for 25 years?
If this is the goal, you can explore different investment options beyond ETFs, but the first step in the right direction will be to be clear on what your objectives are. Are you saving up for a house, retirement, or education? Your goal should influence how you invest. If you are saving for a house, 25 years could be a long time to invest, as inflation rates could make your investment efforts seem futile and even unexpected market downturns could rise. If your goal is to save for your retirement, saving for 25 years is a much better option as your investments over time balances out, especially using the dollar-cost averaging concept, which could minimise the impact of market fluctuations over a long period of time. Now that we have touched on having clear goals and factoring duration, the next thing is to do the maths. How much do you need to achieve this goal and how much will you need to save consistently to achieve this (considering the inflation factor)? This is because the price you pay for fees or a house now, will not be the same as in 5, 20, 20 years.
After this, ensure to diversify your investment portfolio. This means your basket of investments should cut across the various classes of assets and risk levels. For low-risk assets, you can invest in money mutual funds. For medium-risk investments, ETFs as explained above or REITs are great options. For high-risk investments, you could do individual company stocks. Having a diversified portfolio is a great way to spread your risk while maximising your returns, especially when involved in long-term investing.
It doesn’t end there!
Many people stop at the last paragraph but as a good investor, you shouldn’t. Take time to constantly re-evaluate your investment strategy and goals. A brilliant step would be to break down those 25 years into 5-year parts where you can critically reassess your goals, investment portfolio, and strategy to align with the person you grow into. This could mean you withdraw some investments, retain some, and buy new and promising assets.
At MoneyAfrica, we encourage individuals in different phases of life to take charge of their finances. If you have any questions or concerns about your investments or you would like to discuss your portfolio strategy further, join our community by clicking here.
See you soon!
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