Investing ₦1 million in 2025 requires a thoughtful strategy that prioritises real returns, meaning returns that exceed the high inflation rate of 34.60% that was recorded in November 2024.
The time value of money tells us that ₦1 today is worth more than ₦1 tomorrow, so if your investment does not deliver returns above inflation, you are effectively losing money.
Your investment decisions must take into account liquidity, capital preservation, and your personal risk tolerance.
Factors such as your age and investment objectives play a crucial role in shaping a sound strategy. Chasing high returns without considering the risks can lead to significant losses.
With that in mind, let us examine several key asset classes and determine which may offer the best investment opportunities for the coming year.
Equities
For investors with a higher risk tolerance, equities offer promising potential. A diversified portfolio that includes stocks from various sectors such as oil and gas (for example, Seplat, Conoil, and Aradel), insurance, and banking could yield substantial gains. Although banking stocks underperformed in 2024 compared to 2023, the principle of “buy low, sell high” may allow you to capitalise on future recovery.
The Nigerian Exchange demonstrated resilience in 2024, with the All-Share Index posting a 37.65% year-to-date gain. Approximately 70 stocks delivered returns exceeding the November 2024 inflation rate, and many offered dividend yields ranging from 2% to 12%. However, equities can be volatile, and a bullish year does not guarantee a repeat.
Exchange-traded funds (ETFs)
ETFs provide diversified exposure by allowing you to invest in a basket of securities, thereby spreading risk. For example, the Vetiva Banking ETF mirrors the performance of the banking sector. However, the returns from ETFs depend on the performance of their underlying assets.
In the first half of 2024, the Vetiva Banking ETF delivered a 6.14% return, a stark contrast to its impressive 109% year-to-date return in 2023. Allocating your entire ₦1 million in ETFs would expose you to sector-specific risks, but a moderate allocation could yield positive real returns.
FURTHER READING: The right time to buy and sell stocks
Fixed-Income Investments
Fixed-income instruments such as Treasury Bills, Commercial Papers, and FGN Bonds are favoured by conservative investors for their stability and steady cash flow. In 2024, these investments offered yields between 20% and 30% due to aggressive Central Bank rate hikes that increased investor interest.
However, these returns barely outpaced the 34.60% inflation rate in November 2024, resulting in limited or negative real returns.
Rising interest rates may reverse in 2025, potentially reducing yields and causing mark-to-market losses. For this reason, it may be wiser not to allocate your entire ₦1 million to fixed-income investments, but rather to include them as part of a diversified strategy, possibly allocating about 30% of your portfolio to fixed-income.
Mutual Funds
For investors with a lower risk appetite, mutual funds are an attractive option. With choices ranging from money market and equity mutual funds to fixed-income and real estate investment trust funds, they offer professional management and diversification.
In 2024, mutual fund returns varied between 7.5% and 38%. While some funds delivered strong performance, others did not outpace Nigeria’s inflation rate, leading to negative real returns. Selecting high-performing equity or mixed funds may be more suitable for growth-focused investors, whereas money market funds might be better for those seeking stability.
A Diversified Strategy for 2025
There is no one-size-fits-all investment strategy for 2025. Based on key factors such as risk tolerance and financial goals, a diversified portfolio may offer the best chance of achieving real returns while managing risk.
A balanced approach could involve allocating roughly 50% of your ₦1 million to equities for high-growth potential, 30% to fixed-income securities for capital preservation and consistent income, and 20% to ETFs or mutual funds to achieve diversification and benefit from professional management.
In a challenging economic environment where inflation erodes purchasing power, ensuring that your investments deliver real, inflation-adjusted returns is crucial for long-term financial success.