During his presentation at the February 4 2023 Economic Outlook hosted by Nairametrics, a certified financial education instructor Mr. Kala Aja said for Nigeria to grow wealth in this period of economic volatility, diversification is the keyword.
Aja, a financial analyst has said that for Nigerians to protect and grow their savings, and wealth in the face of rising inflation and other economic headwinds, they should embrace investment diversification.
Aja stated this at the Nairametrics Economic Outlook 2023 Webinar with the theme: 2023 Economic Opportunities to mitigate the impact of headwinds.
Investment strategies
Aja who was speaking on challenges of wealth preservation said allocating investment strategically among different assets and asset categories will help manage risk.
- “I think the word is going to be diversification. The adage about not putting all your eggs into one basket is real. The same concept applies to managing your investments.”
- “Diversification essentially means allocating your investment purposefully among different assets and asset categories to help manage risk.”
- Diversify your currency; diversify your asset class, even if you can diversify geographically that will also help a lot,” he said.
Areas of portfolio diversification:
He noted that in Nigeria, real estate and commodities like precious metals are good areas to invest in because they tend to hold value, though they might not pay a higher yield.
- “You might not get yield if you just put your money in real estate or even commodities like precious metals. But you will you’re going to get value on those asset classes.
- “If you are earning a naira, it might be a good idea to diversify into other currencies. If you have the means to earn foreign currencies, it is advisable to invest abroad. “
- “In the US, you can get as much as 2 to 3% on dollar fund, there are some Nigerians that invest in Eurobonds from Nigeria, if you can buy into a dollar fund from Nigeria it will be a good diversification to help you hedge in terms of fixed income earnings,” he said.
He also advised on the prospect of investing in venture capital, adding that though such investment is risky, but when a good business is identified it could turn out to be a money-spinning venture.
- “Another thing you might do to grow your wealth is to go into venture capital, it is very, very risky to go into venture capital, but do something simple that people want. Something like the food business is good because people will always eat.”
- “Food and bar is something you can just leave your job and start that can turn around your transactions, you can also go into exporting products which are currently doing well you can partner and pull your money together and give to an exporter and share the proceeds like a cooperative,” he said.
Reasons for short-term investment for now
Aja advised Nigerians to do more than they are doing before and ensure they are cautious and short-term in investment till the coming of the new government
- “You simply have to do more now than you are doing before, the risk in business is that if you are in a particular asset or one particular location and policy change happened, especially in Nigeria it could wipe everything you have labored for years out, a new government can come and bring unfriendly policies that could detrimental to a business. You need to be very cautious and short-term in investing.
- If you are doing fixed income, you have been on the short term for now till we get a new government and see where they are going so that you can take a much longer plan. And try to spread your risk by having more people invest with you.
- “Have two to four people come together. Make sure you are diversifying that risk, you are spreading that risk. Patience, liquidity, and diversification are the three key words I will see right now,” he said.
What you should know about Ways and Means
On the proposed securitization of Ways and Means, Aja noted that the CBN gave the federal government an overdraft but the overdraft hasn’t been signed.
- “So the whole concept of securitization is to say we want you to sign a cheque, we gave you money but no cheque was signed so we want you to sign the cheque, but unfortunately we have spent N23 trillion, this amount if you convert it to the dollar, it is higher than our foreign reserve, there was no proposal to spend it, it has been spent already so we have to convert that debt to bond because you can’t just leave that money on CBN balance sheet, it has to be recognized somewhere. It is going to be passed eventually, after the election the National Assembly will have a session and pass it,” he said.
On what the government is going to mitigate the debt Aja said: “I think they will sell some assets, liquified natural gas is out there, the sale maybe 5% of that and pay the principal of our foreign debt- Eurobonds, maybe we buy back the bonds, right now there is a discount, the problem of the Eurobond is because it is in dollars and is about 8.5%.
- “With reduced MPR we can refinance the naira debt. But we can’t print dollars, we have to earn it. I think what the next government should do in the long term is do some asset sales, cut down some spending, and pay up the Eurobond debt.” he said.
Why you should hold Dollars if you have
On the right time to convert the dollar to naira, Aja advised those who have a dollar to hold it in dollars for now, adding that if the naira rises or falls, the dollar will still have more value.
- He noted that they should also invest in dollars adding that in Nigeria they could invest in money market instruments that accept dollars.
- “If you have the means to go abroad, you can also explore investment in those climes. Fixed income dollar yield is doing well currently; it could be 2 to 3% in dollar terms which is not bad,” he said.
You may watch a recording of the Nairametrics Economic Outlook on YouTube below.
