The simple truth is that no one can predict the future; no economist or investment house predicted Covid 19, the Russian invasion of Ukraine and subsequent sanctions.
No one could have guessed and then taken an investment position that Hamas would invade Israel and Red Sea shipping would be impacted; we cannot predict these things even though they are global risks.
Nigeria Battles FX Scarcity and Inflation
The Nigerian economy is battling two fundamental headwinds, namely.
A. Low supply of foreign currency export earnings
B. Sky-high inflation
The lack of forex has reduced the federation’s revenues, forcing the Federal Government into more debt to finance its budget deficit.
The Central Bank of Nigeria’s prior capital controls have also created a parallel market for forex in Nigeria with dual rates where FX can be traded.
While the CBN has floated the Naira and liberalized and rescinded most of these onerous provisions, it still grapples with a low F.X. supply.
Inflation has also destroyed the utility of the Naira as a source of value. With the Naira inflation and forex scarcity, 2024 becomes a year of diversification.
Diversify
The best plan for investors is to prepare and have insurance. Preparation means holding a cash reserve to take advantage of opportunities should asset prices fall, thus presenting a buying bargain.
Insurance speaks to diversification to ensure your portfolio can absorb market shocks. Let us discuss these diversification strategies for Nigerian investors in detail.
For Nigerians, ensure you Diversify your earnings. currency-holding. investment portfolio and “geography”. Your target is the maintenance of your Naira purchasing power in 2024, meaning if you earn Naira, we want a way to avoid Naira inflation as much as possible.
Options?
1. Dollar savings accounts in Nigeria like the FCMB Legacy Bond Fund offer a direct way to diversify your portfolio. Please note saving F.X. cash in a domiciliary account is only good if you earn interest.
2. FX Dividend-paying Exchange Traded Funds (ETFs): ETFs are pooled schemes that allow trading during the day; for investors, they offer a cheap way to diversify into a specific sector, currency, or country. The Vanguard High Dividend Yield ETF (VYM) holds about 450 stocks, has a low expense rate of 0.06%
3. $ Money market Funds If you can invest directly in the U.S. market, then FDIC-insured Certificates of Deposit offer rates as high as 4%. However, as the Fed pauses this opportunity will start to wind down.
4. FX Real Estate Investment Trust (REITs), REITS offers exposure to investments in companies that purchase office buildings, hotels, and other real property. My preferred pick is the Vanguard REIT tracker.
5. Precious Metals: Holding gold, silver, or precious metals: Gold is often listed as a hedge, but according to the World Gold Council, in the last 20 years, gold has outperformed most major asset classes.
There are many forms of gold; you can buy a Gold ETF that invests in the metal. The SPDR Gold Trust is the oldest gold ETF trading on the U.S. market.
6. Commodities: Can be simply buying a bag of rice or trading the agricultural commodity market on @AFEXNigeria. It is as easy as downloading the African Exchange app, funding your wallet, and getting exposure to invest in commodities like rice and Cocoa.
7. Stablecoins (do your due diligence)
8. Foreign gigs that pay in FX. Use naira earnings, learn a skill, and sell online charges in FX.
9. FX Bonds issued in Nigeria; The Nigerian market may soon see securities that are issued locally in FX. This is still in the proposal stage; if it is available in 2024, it is an excellent way to diversify.
10. Accepting payments in kind, not cash, see if you can get paid in something rather than currency, instead of cash salary fringe benefits like free rent, e.g., Ask your boss for accommodation
The strategy in 2024 until advised is to avoid holding a currency exposed to 28% inflation.
May your investing journey in 2024 be bountiful
Disclaimer: The article is educational, This is not financial advice or an offer to buy or sell any security listed. The investments are illustrative and represent only the opinion of the author. Investing is risky and past performance is not a guarantee of future performance
