• Wednesday, February 28, 2024
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Savings struggles in a devalued naira: How to stay afloat

Online or offline: Tips for keeping your financial activities safe

Erosion due to inflation, currency devaluation, and low yields threaten to swallow up savings and investments, leaving many wondering how to stay afloat.

January is usually the time for fresh financial resolutions, but for Nigerian investors, the picture looks bleaker than ever.

The Naira once valued at N360 per dollar just a few years ago, now hovers around N850 to over N1000 depending on what market you get it, effectively eroding the purchasing power of every naira in your wallet. This means that investments need to outperform inflation and devaluation just to stand still.

Sola Adesakin, a certified personal finance coach explained how one of her yearly savings targets of $1000 in naira has seen a yearly increase.

“In January of every year, I share a set of savings charts to help people save an extra N750,000, N1,000,000, $1000, £1,000, and their multiples, as well as the equivalent in Naira, using the once-a-week saving plan.The impact of currency devaluation is real, friends,” she said.

Adesakin said in the first year we did the challenge, the Naira was N360/$. Then, the following year, the goal was N480,000 to attain $1000. Two years ago, it was $570,000. Last year, we used N750,000.

With the liberalization of the exchange rate in mid-June, the price of the dollar in the official market increased as it was previously being kept artificially low.

While initially this narrowed the gap between the parallel market rate and the official rate of the dollar, the naira depreciated in the parallel market in the context of ample naira liquidity and high US dollar interest rates.

The Nigerian investor who battles the combination of naira devaluation and high inflation, investments generally lose value unless put in an appreciating currency like the dollar.

Read also: Naira devaluation drags consumer firms as loss per share mount

“To break even, your investments must be out-earning that loss yearly. To achieve this, you must invest in assets offering greater returns than inflation,” analyst at Risevest, an investment and savings fintech said.

The recently released inflation report showed that the consumer price index hit 28.2 percent in November, a 18 year record high and is projected to increase further in December by analysts.

“Inflation at 28 percent and food inflation at 32 percent. The takeaway is that the naira is no longer a store of value, it remains a means of exchange ,” Kalu Aja, a certified financial advisor, said.

He advised that in the short term investors should diversify their wallets, “hold gold jewelry and other currencies. Avoid Naira cash you won’t spend in three months.”

Read also: Banks’ recapitalisation drive linked to naira devaluation

For Long term, Aja said: Invest in assets that inflate, and let that inflation work for you, e.g, real estate, even equity of companies producing goods that are essential commodities.

Joshua Kayode, a graphic designer said that saving in dollars since last year at N560 as doubles is savings.

“ I wanted to have other savings besides my naira savings so I started saving in a high yield dollars-savings account. I invested N56000 equivalent to $100 and it’s now worth over N1000, I wish I started earlier,” he said.

Similarly Damilare Akinlotan, Investment and Equities Analyst for Risevest, said the best way to escape the naira Devaluation is to invest and save in foreign currencies (USD, GBP) Invest in safe havens (Gold, Bonds), Invest in defensive and good quality stocks (Consumer staples, Healthcare, Utilities).

Also avoiding exposure to foreign currency-denominated debt as the cost of repaying the debt is higher due to the devaluation of the foreign currency.

Coronation Asset Management’s latest weekly report said people are switching to money market funds for their savings as Nigeria’s regulated mutual funds have grown by 46.5 percent this year, a growth that exceeds the country’s rising inflation rate.

Most of the growth came from two types of funds, US dollar funds and money market funds.

The world bank advised the federal government on some reforms that needed to be implemented to control Inflation and stabilise the FX market.

They include further tightening monetary policy, phase out Ways and Means financing, phase out development finance schemes of the CBN, continue to build market confidence around free FX pricing, and publishing full information on net reserves to build confidence.