What are the Best Investments In a Hyperinflation Economy like Nigeria’s? Let’s face it, increasing inflation in Nigeria, combined with fewer alternatives for high-yielding investments, is already driving a substantial number of investors out of Africa’s main frontier market.
This comes at a time when Nigeria’s top-performing investment asset class for 2020 is now returning about -3.30 percent per year to date.
According to new statistics from the National Bureau of Statistics (NBS), Nigeria’s inflation rate has risen to a 33-month high, rising to 16.47 percent in January 2021 from 15.75 percent in December 2020. This is the country’s 17th straight month of increasing inflation.
As a result, an interview was conducted with chosen financial professionals to determine the Best Investments In a Hyperinflation Economy like Nigeria’s.
Having said that, it’s vital to remember that there are no assurances when it comes to investing during periods of high inflation. Such investments may be inflation-safe at best, but profits cannot be assured.
With an inflation rate of 16.5 percent as of January 2021, it is clear that there are very few short-term assets that can beat that, especially in the short run. So, having stated that, I maintain my conventional conservative stance that the optimum investment period is the long term.
Returns on short-term investments that are regularly higher than 16.5 percent will need extensive understanding of the asset class as well as shared devotion.
Investments To Avoid In a Hyperinflation Economy
Inflation is defined as an increase in the price of things over time to the point that a certain amount of cash can purchase less than it could previously.
Inflation indicates that prices for goods and services are growing, and as a result, the same amount of money buys less over time. This is especially bad for cash savings since the best approach to control inflation is to invest in assets that provide a return that is greater than or equal to the current rate of inflation.
Long-term fixed-income investments, on the other hand, should be avoided. This is because the underlying security’s value declines when investors shift their emphasis to higher-yielding alternatives when the instrument’s interest rates begin to rise.
Inflation erodes the value of funds, but this should not stop one from investing because some investment kinds are a fantastic hedge against inflation and assist to protect wealth. Gold, REITs, real estate, commodities, and a well-diversified stock portfolio are examples of such investments.
Best Investments In a Hyperinflation Economy like Nigeria’s
In Nigeria, there are several investment possibilities for both affluent and less wealthy individuals seeking an income or return on investment. Some examples are FGN Savings Bonds, Real Estate, Stocks, Gold, Cryptocurrency, Agriculture, and so on. However, doing inflation, assets that provide protection against inflation should be considered.
The greatest assets to invest in during an inflationary period are physical assets that have basic qualities and, as a result, their value increases in tandem with inflation. Real estate, growth stocks, and commodities such as food, crude oil, and gold are examples of these assets (especially gold).
Real estate investment has been and continues to be beneficial, particularly in Nigerian metropolitan areas.
This investment, on the other hand, necessitates a medium to a large sum of money. Nigeria is still a developing country in the globe, and the demand for housing to meet the country’s growing population size remains important, since urban-rural migration continues to increase due to the States and Federal Government’s disregard for rural development.
The value of land and property has continued to grow and will continue to climb due to the demand-supply gap in major cities, where there is a significant demand for residential and commercial structures. See Also: 6 Types Of Real Estate Investment – Investors Guide
How to Invest in Real Estate In Hyperinflation Economy
- Through financial participation in a joint venture property development scheme. This saves time and allows for a faster turnover of investment funds.
- Purchasing distressed property today, renovating it, renting it out for two years or longer to hold if required, and then selling it.
- Property deals owned/financed by the crowd
- Rent reductions are guaranteed.
- International property investment for good cash flow and currency appreciation
All of the above may be accomplished as a large ticket investment or as a small fractional holder via the use of a well-structured and regulated vehicle.
Investing in gold has traditionally been a source of golden income. Because of the value associated with gold all around the world, its value has continued to rise over time.
Gold is still a valuable symbol of wealth and prosperity, and it may be acquired as bars, coins, or jewelry and resold at a greater price over time.
Agriculture and Agro-allied Investment.
Inflation affects the overall health of a country’s economy and its inhabitants in a variety of ways, and the only way out of it is to raise investments in local manufacturing, expand existing local companies, and adopt fiscal policies that strengthen the country’s currency.
The general population, high net worth people, and Nigerians living abroad should consider investing at least 20% of their assets in agriculture and agro-allied investments.
A diligent investor may hedge against inflation risks by investing in the asset groups listed below, which frequently outperform during periods of high inflation.