By William Jimoh & Paul Metu

Mr. Samuel Iserhien,

A lot of people invest in stocks rather than they do in bond because of its capital appreciation potential, which enables the investor to make very good money within a very short period.

Like in the 2000s, between 2000 and 2007, when the market was booming, that was the time the market was active positively because then, the stocks were appreciating and that made it possible for investors to buy a share at the rate of N10 and between two to three years after, your N10 had become N50 resulting into capital gain for the investor.

That is really very attractive because as at that time, there was no other investment that was as lucrative as stocks; although later on property became equally attractive because then if you buy land for N1 million,  after two to three years, your  N1million could  become 10 million. That was the time when a lot of people developed interest in stocks most especially those that had the money to invest.

But in the case of bonds, they do not really appreciate like stocks, but they are more secure than shares. If you talk about the volatility of prices, you find out that bonds are more secure than shares because just as the price of shares can appreciate, it can also depreciate quickly.

For example, many of us lost lots of money during the market meltdown because of the volatility of shares. Though I am not a full time shareholder, but as somebody who has little shares here and there, together with many other Nigerians, we suffered lot of losses between 2008 and 2010.

The shares that were selling for N50-N60 dropped to as low as 50 kobo. That was what the stock market went through at that particular period. But from 2011, it started moving upward and today, it is a little bit stable. The bank stocks that are still having some problems but currently, the shares of manufacturing companies are quite good.

The only advantage that bonds have over stocks is that they very secure, even though they do not appreciate; an investor will be very certain that come rain or shine the money will not disappear. He knows that he will get the 100 percent of the worth of his investment.

But when you talk about the purchasing power of money, the value of money changes year after year and in a case whereby the purchasing power of money drops, there must be a commensurate increase in income to compensate you for the value of lost during the period of investing.

And that is why if you buy a share at N10, you know that your N10 could drop to N6 within a short while. But because it also has the potential of rising from N10 to N20, it will compensate for the loss of value due to inflation.

Bonds on the other hand do not have such kind of cover; all you get is your fixed interest at quarterly or yearly basis depending on the signed agreement.

Now they are trading bonds and there is also the possibility that the price may change slightly either upward or downward just as we have in shares, but the volatility is not as high as that of shares.

And just as it is generally known, the more risk involved in a business, the more profitable it becomes  and that is what shareholders also look at before putting their money into any form of investment because they are in the market to make profit as fast as possible.

Mr. David Sunday Oso,

I prefer buying Treasury bill, T-bill is either quarterly or monthly investment. This is how it works. If you have N1000 and you invest it in T-bill, the interest is 10 percent and immediately, right there at the point of investing your money you will be given the 10 percent interest and with that you have only invested 90 percent.

And people patronise this because it is time bound and the time frame is not as long as that of bond, which normally could be up to two, five or 10 years and that is the reason why many people are losing interest in investing in bond.

And for this same reason, they prefer stocks because it provides annual income inform of dividend, which some time could also be accompanied by bonus. With the two, that is bonus and dividend, the minority investor is satisfied because it has brought about appreciation to the investment.

On the bond side, if you buy bond, there is no appreciation, it is what you put there that you will take at the maturity, which is the interest you get and that is all.

For instance, I am an investor and the whole of my family, including my grandchildren have shares in First Bank and we are getting our dividend any time it is declared and we also get the bonuses.

So, the shares have appreciated to such an extent that everybody is happy. This year, the bank is paying N1 per share. Though there is no bonus this year, last year we were given bonuses of one for eight units and this we have added to what we have to cumulate the dividend for this year.

Government bond is not as encouraging as stock because we have what I will call wasteful government. When you buy the federal, state or even the local government bond for instance, you don’t know the kind of people that are managing it. And you hear of people looting government money here and there rather than investing the money on ventures that will justify the investment.

If you think that whether they use the money well or not should not concern you as an investor, you lie because supposing the government collapses or the army should take over the government, what makes you think that you will get your money back? And even if they are considerate to say they are giving you the money, it is going to take a long time before they can pay you and that will not be in the interest of an investor who has planned what to do with his investment from the starting point.

Beyond that, the purpose of any form of investment is to get the capital, the interest and the bonus, but you cannot be certain of this when it come to government bond, most especially in a country like ours.

And that is why like I said, despite all these, and with my interest in bond, what I do is to buy T-bill which matures within 90 days and I get my interest. After this, if I feel like renewing it, I can do that and if not, I get out. I don’t embark on any form of investment that will take so long before it matures just like in the case of share. Another thing is that people are also encouraged to invest in T-bill because the interests are paid at the point of investment unlike like bond where you can never be certain of what will happen to your money.