So I was talking to a good friend about how to start investing if you're working with a small budget and don't want to/can't exert yourself too much (that is, start a business venture, etc). In other words, I was trying to find the simplest way to make my money grow, without having to take out too much time from my already crazy schedule. He had two things to say: exchange arbitrage and treasury bills. If you're not quite sure what these are, but are too afraid to ask, don't worry, I already asked the question for you. Here's what I found out:
Exchange arbitrage: This is actually more relevant for women living at home in Africa and it is incredibly easy to do. Working in Ghana, Nigeria, or anywhere else in Africa means that your salary (usually paid in the local currency) often falls victim to the constantly fluctuating inflation rate. And then there is always the problem of the government devaluing the currency. While such economic measures may be good for the country as a whole in the long run, it certainly doesn't do much for your nest egg. To avoid this problem, my friend (who lives in Ghana) converts half of his monthly salary, which he receives in cedis, into dollars and saves it in a dollar account at his bank. The other half he keeps in a cedi account so that he can easily draw cash from it for his daily needs. Having the dollar account means that half of his money is relatively safe from the fluctuations of the cedi, and if the value of the cedi happens to fall due to changes in the market, he can actually make a small profit when he converts money from his dollar account into cedis. Apparently having a foreign currency account and a local currency account is very common.
Treasury bills: I must admit I wasn't quite sure what these were. Of course I've heard of treasury bills, but I didn't really know what they were or how they could help me make money. It turns out that these are really easy as well, and it is something you can do, regardless of whether you live in the diaspora or at home. If you've been doing a good job of
tracking your spending, and are accumulating a little bit each month in savings, you may not want to put all of that money into a savings account, which is notorious for its non-existent interest rate. At the same time, you may not want to take too much of a risk with that money and do something big. Well treasury bills are a safe way of making a little interest on your money, without taking a risk. Treasury bills usually require a minimum investment (ask your bank how much, but I know in the US the minimum is about $100). They are usually short-term, and mature within a year from their date of issue. For example, you can buy a four week treasury bill, a six-week treasury bill, or even a thirteen-week treasury bill. When the bill matures, that is, at the end of the four weeks, or six weeks, etc, you get paid the face value of the bill, which is always a little higher than what you originally paid for the bill. That way, you make a small profit. The longer the maturity period, the higher your interest. Treasury bills can also easily be sold for cash, just in case you have an emergency and need money quickly. In the US, the interest you gain from treasury bills are exempt from state and local taxes. This may be applicable elsewhere. Check with your bank when you're purchasing your treasury bills.
Treasury bills are like loaning money to the government. You make money because they are usually sold for less than they are worth, but when the bill matures and you get paid by the bank, you receive the full face value of the bill. I've been told that treasury bills are 100% safe because they are backed by the government and therefore are a low-risk venture. But although the profits are not huge (for example, for an investment of $1000, you may make about $50 when the bill matures), you do make more than you would if you just held your money in a regular savings account (which is like lending your money to the bank at zero interest and they in turn will lend it out to individuals for a high interest rate and earn a sizeable profit, while you earn nothing).
Hope I got it right. If anyone out there has more experience with treasury bills, please share your knowledge.
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