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How To Protect Your Money From Naira Depreciation

September 14, 2021
in News, Finance
Reading Time: 6 mins read
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How To Protect Your Money From Naira Depreciation
N1000 Notes

The persistent depreciation of the naira is the greatest threat to your  welfare and future prosperity.

Naira depreciation means you have to spend more naira to purchase $1 dollar. Two years ago, You needed N360 naira to purchase a dollar, today you need N570 to purchase $1, thanks to the decline in price of crude oil which accounts for about 90 per cent of Nigeria’s dollar supply.

Naira depreciation is the number one cause of the steady and fast increase in prices of goods and services, reflected in the 15.63 per cent annual inflation rate for December 2021 according to the Nigeria Bureau of Statistic.

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As a result, the naira is losing value almost every day.  

The following tips will help you to minimise or completely avoid losing money to naira depreciation. 

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Buy bulk for your daily food and essential commodities

How To Protect Your Money From Naira Depreciation
Source: Financial Derivatives Company

Due to  persistent  naira depreciation, prices and commodities have risen by an average of 52.7% as indicated in the image above. But you can reduce the impact of the price increase on your pocket by bulk buying your daily essential commodity. In fact this might  help you save  up to 20 per cent by buying bulk, which may be the profit margin of that retailer on your street.

Go for DURABILITY and REPUTABLE BRANDS when purchasing  household equipment like Television, Sound System, Washing Machine, Refrigerator

Between 2007 and this year, prices of these goods have risen by about 400 per cent thanks to  persistent naira depreciation. Hence it is better to buy something that will last a lifetime. 

Durable household equipment can last more than 20 years or even a lifetime. This will help you avoid spending money every five years to replace such household equipment and in the process lose more money to naira depreciation. 

Reduce cash balance in your current and savings account to the barest minimum as dictated by your cash needs for two to three months.

The persistent  naira depreciation has made nonsense of  every form of bank deposit. The naira is losing value every  month and hence the idle cash in your current and savings account is also losing value accordingly.

So any money you don’t need in the shortest time should not be kept in your current and savings account. Such money should be invested.

Be Prompt with Capital Projects

Prices of building materials, cars etc are rising sharply due to the persistent naira depreciation. 

Remember that most of the materials are imported hence as the exchange rate rises, their prices also go up. For example, the price of aluminum has risen  by 33% to $2,650 per metric tonne between January and this month. 

Also, the price of locally priced commodities like cement has gone up 150% to N4,000 per bag.

To avoid spending more on that capital project because of naira depreciation, it is expedient to execute promptly. In fact, it is more expedient to borrow to complete the project than waiting to save the required fund. 

Avoid or Minimise   Investment in  Treasury Bills  

How To Protect Your Money From Naira Depreciation
Source: Financial Derivatives Company Inflation Rate is Higher Than Interest Rate on One-Year Treasury Bills

The interest rate on a one-year treasury bill is now 5.4 percent. That means if you invest  N100 in a one-year treasury bill. You will get N105.4 at the end of 12 months. But with prices of goods and services rising more than 15 percent annually, you now need N115 to purchase what you would have used N100 could buy in January last year. Thus by the time your treasury bills investment matures, and you get N105.4, you have lost N9.6 to naira depreciation.

Consider Investment in Mutual Funds, Savings Bonds, Shares and Real Estates

To protect your regular, piecemeal savings from naira depreciation, consider mutual funds or FGN Savings bonds.

Presently, the interest rate on 2-years FGN Savings Bonds is 8.8 percent and for 3-years Savings bonds, it is 9.86 percent. Though still below the inflation rate, it is far higher and more stable than the interest rate on treasury bills. Thus Nigerians invested N890 million in both FGN Savings Bonds last month. 

How To Protect Your Money From Naira Depreciation
Soure: Debt Management Office

It is also better to invest in mutual funds than putting your money in treasury bills, fixed deposits, and or savings accounts. For example, some of the types of mutual funds recorded between 14 percent and 10 percent in the first quarter of this year (Q1’2021). Mutual funds are collective investment schemes managed by professionals. And their operations are regulated by the Securities and Exchange Commission. 

Alternatively, you can invest in shares, real estate, or bitcoin. The value of shares on the Nigeria Stock Exchange (NSE) has risen more than 50 percent in the last one year while  Real Estate value has risen by 15 percent. And Bitcoin has soared by over 300 percent.

According to Bismarck Rewane, CEO, Financial Derivatives Company, investment in shares is the best hedge against inflation. On a year-on-year basis, Nigerian equity (shares)  investors’ return beats inflation by 37.47%.

How To Protect Your Money From Naira Depreciation
Source: Financial Derivatives Company

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Tags: Financial Derivatives CompanyNairaNaira Depreciation
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