We all work very hard for little pay and still make conscious efforts to save up money for rainy days; a wise thing to do by the way. However, for those who think saving is all there is to financial management, you couldn’t be farther from the truth. What if I told you that something is “stealing” your savings right now? Indeed, your savings are being stolen! And not only should this worry you, it should also spur you to start investing today.
Imagine this Scenario: 24-year-old Tunde had recently landed a job with one of Nigeria’s tier-one banks. With his N200,000 per month salary, he is regarded as the latest big boy in town by his yet-to-be-employed friends. But Tunde will soon realise that his salary is nothing after all. He has expenses to take care of and this makes saving very difficult.
Let’s assume he manages to consistently save up N42, 000 from his salary every month, in two years, he’d have about N1 million in his savings account. Normally, this amount should accord the young man some level of financial security. After all, a million naira can accomplish quite a lot when it’s handy. But not in Nigeria though, because like I mentioned earlier, there’s this thing that specialises in “stealing” people’s savings and rendering them worthless overtime.
Something is stealing your money!
Indeed, something is stealing your savings and it is called inflation. That is one word nobody wants to hear, especially those who understand the real damage it can cause. One of those people is financial expert, Damilola Alonge, who recently lamented how “inflation is your big enemy.” Writing on LinkedIn, Alonge painted a really grim picture of how disastrous inflation can be with the following words:
“If you had N1 million in 2008 and it wasn’t invested, and the average inflation rate was 12% over the ten year period, your N1 million has now become N321, 973.24 in value. Meaning, your N1 million is now worth about N321k today.”
The unseen robber: You probably never saw that coming! Little wonder Margaret Thatcher defined inflation as “the unseen robber” which devalues our savings and our lives.
In Nigeria where the inflation rate is “stubbornly high” as Alonge puts it, it becomes especially difficult to make any meaningful financial planning dependent entirely on savings. Nothing else could ever be more frustrating for savers. It is even more frustrating than your bank folding up.
Let’s briefly go back to Tunde for a second. Imagine he was planning to use his savings for a project only to discover that it’s worthless, can you imagine how bad he’d feel? Imagine all the times he denied himself of immediate gratification just to save up, only for inflation to erode the value of his savings!
But there’s a way out
This is where investing becomes important. According to Alonge, a careful mix of assets in your investment portfolio could help you mitigate the unforeseen impact of Nigeria’s inflation. Now, depending on how deep your pockets are, the following investment plans can be considered:
Real Estate Investment Trusts: According to Investopedia, real estate equity can hedge against inflation by as much 69%. This is not surprising. After all, real estate assets are known to keep appreciating in value overtime, the same time inflation could very easily erode the value of all that money you are accumulating in a bank account.
Note that Real Estate Investment Trusts (REITs) are trusts or corporations that specialise in pooling capital from different investors for the purpose of purchasing and managing properties/mortgage loans. Look out for the company that offers the best REITs and start your investment today.
Select high-yield mutual funds: Investment experts will always advise that mutual funds make for a good investment plan that can withstand inflation. Not only are they diversified in nature (in that they are a combination of funds from different sectors of the economy), they also come with the advantage of professional management. You can rest assured that your investment will be professionally managed by qualified individuals.
Invest in Stocks and Bonds: A stock/bond portfolio can beat inflation by 69%. So, invest in high-yield bonds, high coupon bonds, and even floating rate bonds, if such are available. Also, invest in stocks that are known for paying high dividends. There are a couple of such that are listed on the Nigerian Stock Exchange.
Buy Gold and other commodities: Gold is also known for beating inflation. So, buy some of it if you can afford to. You can also consider buying a broad range of other commodities through ETFs. Vetiva Asset Management Company can help you in this regard.
In conclusion, never allow inflation to erode your hard-earned money. Savings are good, but you must save strategically and invest wisely. Let this serve as your eye-opener, just in case you didn’t already know.