5 Ways to Hedge against Currency Devaluation (Example Naira)
There’s no gainsaying the Naira (Nigerian Currency) has continued to experience a persistent decline in value over the years. Savings, investments, pension funds and other liquid asset is depreciating
I thought it would be nice to share with my lovely readers 5 ways to protect your savings from loss of value due to currency devaluation and inflation.
It’s no gainsaying the Naira (Nigerian Currency) has continued to experience a persistent decline in value over the years. Savings, investments, pension funds, and other liquid assets are depreciating as the day goes by.
Relationship between Currency Devaluation and Inflation
I will save you the stress of all the technical jargon and explain in layman terms.
Currency Devaluation – When there is a significant fall in the value of a countries currency against another currency over a period of time. This means that the country's products and services are likely to be sold at lower prices in foreign markets, making them less profitable.
Inflation – This is the constant increase in the cost of goods and services in a country. For example, as of January of 2020, a Sardine cost 180NGN but today it costs over 400NGN. So this means there has been a loss in purchasing power of Naira in the past year.
Why should you Hedge your Funds?
Nigeria actually started to witness a fast decline in Naira against the dollar since 2015 (₦197/$) till date (June 2021 - ₦500/$)
This devaluation of Naira will continue to happen until there’s a deliberate action by the government to revalue the currency when export increases and import is controlled. This doesn’t seem to be a possibility for the Nigerian economy in years to come hence why you need to protect yourself from loss of value.
Also, imagine a case of where you planned to immigrate to say, Canada in two year’s time. You probably need about $12,000 CAD as proof of funds. In 2019 when I migrated, this was equivalent to 4.3Million Naira but today the same amount is equivalent to 6M. This will cost you an additional 1.8 million naira more than you required two years ago. Did your income really increase during that period?
How to Hedge Against Currency Devaluation?
1. Saving in a Stronger currency: One of my biggest regrets after my migration to Canada was not converting the rest of my savings to USD. I ended up losing 150NGN to a dollar in less than one year. I could have avoided this by just converting my savings to USD or any other stable currency and leaving it in my domiciliary account. You may not want to have all your savings (50%-70%) in Dollars if you spend naira daily. You can easily convert USD back to Naira should you need your naira for any contingent reasons. Apps like PiggyVest, Lemonade Finance, etc can help you achieve this.
2. Foreign Investments: Local investments these days cannot completely protect you from losing value. Consider investing in US stocks, Mutual funds, and ETFs. This way you’re not only saving in a foreign currency but also you earning dollars in interests and dividends. Apps like Bamboo, Rise, etc can allow you to buy US stocks in Nigeria with no hassle.
3. Properties and Real estates: Assets like land, gold, and real estate have been seen to appreciate in value over time. Instead of leaving your cash idle in your bank account. Consider investing in appreciating assets that will build your net worth over time.
4. Cryptocurrency: This is also one of the most popular ways to hedge your savings. You can invest in Bitcoin and other top Altcoins and hold long-term for profitability. Imagine buying Etherum at $1500 and two years later it’s valued at $5,000!! Woohoo… You’ve just gained over 200% return compared to if you had your savings in Naira where your $1500 becomes $700 by just holding in naira. This can never be me!!! You can invest in Crypto using Apps like Binance, Luno, and Quidax
5. USDT: Not everyone has the risk tolerance to invest in Crypto and that’s okay. USDT or Tether is a stable USD equivalent token. Tether is used by crypto investors who want to avoid the extreme volatility of other cryptocurrencies while keeping value within the crypto market. You can easily convert your Naira to USDT on Binance.
Final Thoughts
Even if you live and earn in a country where your currency has more stability than naira you should still consider Hedging your savings. Keeping all of your savings in fiat or cash form is not the best as you’re not gaining any value. Consider investing a significant portion of your savings in low to moderate risk investments like Stocks, ETFs, and Mutual funds.
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Insightful
True. Saving in Naira is a bad decision