It is not laziness or a mistake that banks in Ghana invest about 25% of their investable funds in Government of Ghana Treasury Bills, notes, and bonds. Apart from the low risk, the returns are usually quite high.
Treasury Bills rates have stayed above 21% for the most part of 2016. The one-year note has averaged 20.12% over the 16-year period from 2000 to 2015, touching a high of 31.57% year-average in 2001 and a low of 11.80 year average in 2011. The return on the Ghana Stock Exchange has averaged 17.34% in the last 10 years to 2015, below the 10-year average of 17.63% on the 1-year Government of Ghana note.
In plain language, if you invested on the Ghana Stock Exchange in the weights prescribed by the GSE All share index (composite index from 2011), your investment would have earned you an average return of 17.34% annually, whereas investment in the 1-year note would have earned you an average of 17.63% annually.
I recommend treasury Bills investment as a way of adding some safety to your total portfolio of investments, rather than a total investment strategy. The returns are sure, and in Ghana, relatively high. If you invest in real estate, transport, agriculture, manufacturing, Infotech, mutual funds or any other asset, it is prudent financial practice to add some reasonable proportion of risk-free assets to the portfolio, and treasury bills are just the right assets. If all else fails, you have your treasure bills to fall back on.
Treasury bills, unlike other financial and non-financial assets in the country, are highly liquid. Investors can move in and out of treasury bills at anytime. Due to its liquidity and little or no risk, many financial institutions are ready to discount your bills for you for cash. Besides cash, it is one of the most liquid assets. You can easily convert treasury bills into cash whenever you want. It’s liquid.
Access to funds
Due to its low risk and high liquidity, treasury bills are one of the most acceptable forms collateral that banks and other lending institutions in Ghana, Nigeria, Kenya and almost everywhere would provide funds against. Your treasure bills and notes would not only give you high returns with low risk, but can actually make you get more funds for other business ventures. By so doing, you gain access to more funds for investment.
So, say you have GHc50,000 available to start a business that requires GHc40,000 capital, you can actually invest all the GHc50,000 in treasure bills and borrow or take a loan of GHc40,000 with your Ghc50,000 treasury bills investment assigned to the lender as collateral for the loan.
You then work hard with the GHc40,000 and pay back your loan, then your GHc50,000 treasury bills would be released back to you by the lender. That easily makes you GHc90,000 assets, without taking into consideration the returns on your business and treasury bills.
To conclude, if your regular risky investments are not returning as much as treasury bills rates, you might as well close shop and pour your funds into treasury bills and go to sleep.
[junkie-alert style=”red”] NB: Never avoid risky investments. Rather, manage the risks and maximize the returns on your investments. [/junkie-alert]