The Nigerian economy is currently facing a rough storm. Wild swings in currency exchange rates, rapid price increases, and a growing number of businesses shutting down are creating a difficult operating environment. These challenges can make planning for the future difficult for businesses and individuals alike and can lead to higher costs for everyone.
Amid this situation, Sovereign Finance Company Limited (SFL), is providing information to enable discerning individuals and businesses to proactively navigate these financial headwinds.
Read also: Sovereign Finance sees FX rate unification policy empowering SMEs
A recent webinar hosted by the SLF with the theme: “Sustainable Investment Strategies for Changing Times.” Which brought together industry experts, investors, and stakeholders sought to explore emerging trends, strategies, and the rationale for investing in today’s critical period.
Evolving Investment Trends
Olusola Dada, managing director, SFL, highlighted key issues that are critical to taking key decisions. De-dollarization and Competitive Devaluation: Nigeria is witnessing a shift towards de-dollarization and competitive devaluation, signalling reduced reliance on the US dollar and a more diversified currency base. This trend reflects a broader global movement towards currency independence and carries implications for trade and investment dynamics.
Optimization of the Investment Triangle: Investors are increasingly prioritizing the optimization of the investment triangle, balancing Return, Liquidity, and Risk. This strategic focus underscores the importance of achieving profitability while ensuring market accessibility and effective risk management.
Rise of “Green” Investments and ESG Consideration: There is a growing emphasis on “green” investments driven by environmental, social, and governance (ESG) considerations. However, with this trend comes an increase in accusations of “greenwashing,” highlighting the importance of robust ESG due diligence for investors.
Disruption by Fintech Innovations: Unicorns and fintech companies are reshaping the financial sector landscape, introducing innovations such as robot investing and do-it-yourself investment platforms. These advancements challenge traditional models and underscore the growing influence of technology in financial services.
Understanding Risk and Return The concept of risk and return was elucidated, highlighting the fundamental principle governing investment decisions. The risk-return trade off underscores the relationship between potential gains and the level of uncertainty associated with an investment. Balancing risk and return objectives are crucial for investors, requiring strategic risk management frameworks aligned with financial goals and risk tolerance.
Rationale for Investing in Uncertain Times
According to Dada, “Despite economic uncertainties, investing remains essential for wealth preservation and growth, as investing helps protect against inflation, enables long-term wealth accumulation, and spreads risk through diversified portfolios. Moreover, strategic investment can manage specific risks and support legacy planning, ensuring sustainability across generations.”
SFL outlined four recommended strategies for sustainable investments: Defensive Sectors: Investing in sectors less sensitive to economic downturns, such as healthcare and utilities; Diversified Portfolios: Spreading investments across multiple asset classes to reduce risk; Real Estate Investment Trusts (REITs): Participating in income-generating real estate properties through REITs; and Emergency Savings and Liquid Assets: Maintaining readily accessible funds to buffer against unexpected expenses or economic downturns.
Navigating Uncertainties with Diversification
Diversification emerged as a key theme, offering a proven strategy to navigate uncertainties, reducing risk and enhancing returns. Various forms of diversification were explored, including asset class, sector, geographic, and market capitalization diversification, among others.
By spreading risk across various assets, investors can mitigate the impact of adverse events and capitalize on diverse growth opportunities. However, caution is advised against over-diversification and hidden risks associated with seemingly diversified investments.
Dada explained that by spreading investments across different assets or asset classes, investors can mitigate risk and capitalize on diverse growth opportunities.
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