5 ways to hedge your Naira against inflation

• Nigeria’s inflation surged to 33.88 per cent in October 2024
• This raises concern about the depreciating value of individuals’ finances
• TheRadar highlights five ways to get one’s naira ahead of inflation

The National Bureau of Statistics (NBS) recently released the Consumer Price Index (CPI), which revealed that Nigeria’s inflation rate reached 33.88 per cent in October 2024.

According to the NBS, the rate is a 1.18 per cent increase from the 32.7 per cent recorded in September 2024, attributed to the increase in transportation costs and higher food prices.

Nigeria’s inflation rate soared from 22.4 per cent in May 2023 to a new 28-year all-time high of 34.19 per cent in June. After 19 months of increase, it decelerated to 33.40 per cent in July and declined further for the second consecutive month in August to 32.15 per cent.

The surging inflation is why the Central Bank of Nigeria has maintained its monetary tightening stance by increasing the interest rate.

The apex bank has increased the rate for the sixth time in 2024 from 22.75 per cent in February to 27.50 per cent after its 298th Monetary Policy Committee meeting held on November 25 and 26.

Nigerians, trade unions, business analysts, and economists have criticised the CBN's measures, citing their implications for businesses and the broader economy.

Amid the criticisms, the only sector smiling to the bank is the banking sector, whose net interest income has more than doubled since the last interest rate hike. Other sectors, especially manufacturing, are unhappy with the CBN’s strategy as the policy has increased interest rates on loans.

For individuals, rising inflation is concerning as the value of finances, including cash and those saved up in the bank, will depreciate and be eroded, necessitating the need to take adequate steps toward hedging one’s finances against inflation.

5 ways to safeguard your finances against inflation

1. Diversify your investment portfolio

One way to safeguard your finances in an economy with high inflation is to diversify your investment portfolio. This strategy means investing in various asset classes, allowing you to make up for losses in one class with gains in another.

You can diversify your portfolio by investing in bonds, stocks, mutual funds, dollar-denominated investments, Real Estate Investment Funds, Treasury bills, and commercial papers. These assets are recommended because they tend to appreciate or maintain the same value over time.

Bonds, offered by governments or corporate organisations, are fixed-income security that allow you to lend governments and institutions your money for an agreed period. Bonds are typically used to finance projects and supplement budget deficits or revenue. With bonds, you are making a low-risk investment and are regularly paid interest and receive your investment at the appointed maturity date.

Stocks allow you to own equities in companies, especially those listed on the Stock Exchange. Though the performance of stocks and their profitability is dependent on market conditions, buying a good stock is not a bad idea if you are looking to diversify your investments, as they tend to perform well in the long term.

Mutual Funds, typically under the supervision of a mutual funds manager, involve pooling funds with others to buy assets such as stocks, bonds, money markets, etc., making you a co-owner of all the securities in the fund’s investment portfolio. The performance of all your assets determines the value of the funds.

With Real Estate Investment Trusts (REITs), you can invest in real estate without directly owning a property. This way, you don’t face significant risks while also making profits off the value of your investment.

Dollar-denominated investments are becoming popular in Nigeria as they offer higher returns than naira investments. Dollar investments are not affected by the volatility and currency risk that naira investments face and offer more stable returns due to their valuability. This makes it Nigerians’ go-to while considering investment portfolio diversification.

2. Invest in real assets

Real assets include tangible products or commodities whose values tend to appreciate over time. Real assets investment offers you the opportunity to hedge your finances against inflation while making profits.

Some real assets you may consider investing in are precious metals, real estate, and commodities.

Buying precious metals such as gold and silver is one way to stay ahead of the inflation curve because of their intrinsic value, which is driven by demand and global appreciation.

Investing in real estate gives you ownership of land and other fixtures. It includes residential, commercial, industrial, or special-purpose property. Investing in real estate allows you to earn interest and profit with the appreciation of the value of the property or from renting and leasing.

Also, buying commodities like energy commodities, natural resources, and agricultural products are valuable ways of getting ahead of inflation. Buying and storing, especially agricultural commodities like sorghum, millet, and soybeans, helps you make more profits as they tend to be in high demand during inflation.

3. Invest in securities

Securities, such as the Federal Government of Nigeria’s Sukuk Bonds, are often inflation-protected as their principal value is adjusted based on changes in the Consumer Price Index (CPI). This way, your investment maintains its purchasing power over time.

4. Consider savings accounts with high-yield

High-yield savings accounts are different from traditional ones, are managed by reputable financial institutions, and provide better returns. They offer interest rates that are significantly higher than the national average, helping your money grow faster and keeping it ahead of inflation.

5. Invest in yourself

The choice of looking inward and investing in yourself when considering options that potentially keep your finances ahead of inflation is rarely considered.

Investing in yourself means enhancing your skills and education through relevant professional certifications, specialised training, advanced or higher degrees, entrepreneurship, and business skills development.

Considering this option positions you for higher earnings and pay as a worker or as a consultant or advisor in your field of expertise.

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TheRadar aggregated 10 of these insights, which are crucial for aspiring entrepreneurs.