How Weak Naira Affects Your Income, Assets, Finances

How Weak Naira Affects Your Income, Assets, Finances

Tough question: Do you think Godwin Emefiele, Governor at Central Bank of Nigeria has all his investments in Naira assets? Why should you? The logic is simple and it also explains why higher numbers of Nigerians want to travel abroad.

Despite his massive influence on monetary policy, it is imprudent to think the CBN Governor is an ardent lover of Naira assets – he is a banker! This is just to give an insight as to why you should hedge against falling Naira.

Striking a balance between nationalism and economic reasons isn’t an easy task, often.

The thing is, rich people, professionals and middle-class employees understand the recklessness in holding all your eggs in volatile, breakable baskets.

Naira asset as it is today is volatile, and negative movement in local price level plus foreign currency inflation put you under undue financial stress. You may not even know it or you just ignore it.

In 2015, Naira was N197 at an official window and six years after you cannot get a dollar less than N410. ‘Men’ keep their assets in dollars.

Have you ever imagine how Aliko Dangote has been able to maintain the rank of the richest man in Africa? Curiosity, they say, kills cats but not those with 9 lives.

Obviously, Forbes does not rank Naira assets. Here is the fact: knowledge people, rich class don’t really hold their investment in fluctuating assets. For them, it is rationality over nationalism!

With inflation rising, and Naira depreciating, one has to factor these into the equation when taking an investment decision.  Pulse, and imagine how many dollars your total naira assets can get you today.

Compare this with 5 years ago. You have just discovered how the Nigerian weak exchange rate has devalued your net worth.

How much has your income increased in the last five years? I believe, for many not so much. Imagine what salary earners without alternative investments are passing through.

They are splitting the same Naira value on expensive foods, fuel, logistics, and housing. There are few ways to hedge against depreciating currency.

Actually, as the local currency depreciates along with the inflationary trend, people tend to be poorer. Imagine a Nigerian needs to buy $25,000 equipment in the United States.

The thing is, that is luxury for the poor class. You can’t even get credit even though you are among the 66.7% that are gainfully employed.

What do you do when you don’t know what to do? The best way to hedge against depreciating assets is to swap your currency for the stronger one. The best way to do this is to buy financial products with underlying assets in a stronger currency.

Here is an insight on available channels to hedge falling local currency.

ARM Euro Fund

Asset and Resources Management limited operates a Eurobond fund – an open-ended, low-risk mutual fund.

ARM Asset Management team invest the fund in dollar-denominated Eurobond floated by the Federal Government of Nigeria and top tier Nigerian corporates.

Subscribers to the fund enjoy competitive returns on their US Dollars investment. The fund is more suitable for investors seeking medium to long-term capital growth

This is an affordable investment as you only need to make a minimum initial investment of $1,000 and additional contributions in multiples of $100.

For many Nigerians, that is a lot of money when you consider the volatile exchange rate. But there are advantages if such an amount can be put aside for specific future projects.

The fund will be managed by ARM professional fund management team with market certified expertise, making a good hedge against the depreciation of the Naira.

The investment firm has traction and has delivered cutting edge services with well-designed investment/financial products.

As an investor, you will be entitled to the distribution of dividends of 75% of profit each year, while 25% will be automatically reinvested on their behalf in proportion to their unit holding.

However, you are given the opportunity to invest the dividends paid to you As management’s allocation strategy, ARM Euro fund has a defined and approved allocation of funds amongst asset categories.

The company said its fund manager uses their expertise to determine where to invest in line with the approved asset allocation.

Stanbic IBTC Dollar Fund:

Stanbic IBTC Dollar Fund is another window of investing opportunity available to those that feel their exposure to Naira asset is impacting their net worth negatively.

The dollar fund aims to provide currency diversification, income generation, and stable growth in the United States dollar or the greenback.

Also, by design, the financial product seeks to achieve this by investing a minimum of 70% of the portfolio in high-quality Eurobonds, a maximum of 25% in short term USD deposits, and a maximum of 10% in USD equities approved and registered by the Securities and Exchange Commission of Nigeria.

That helps close the access gap as sometimes, even with your buckets of Naira deposits, you may not be able to access some offerings individually.

Stanbic IBTC Asset Management explained that the financial product is quite convenient because investors can transact from anywhere with Stanbic online platforms (Mobile App and Web Portal).

It offers a diversification advantage as mutual funds mitigate investment risks by investing across a diverse range of assets thus avoiding concentration risk.

This appears flexible for investors as the firm’s array of investment products are designed to suit investors various needs.

Stanbic IBTC Dollar Fund (SIDF) was launched in January 2017. The Fund invests a minimum of 70% of its portfolio in high-quality Eurobonds, a maximum of 25% in short term USD deposits and a maximum of 10% in USD equities and for 180 days minimum holding period.

Meanwhile, the penalty for redeeming within the minimum holding period is 20% on the accrued income while the minimum investment amount is $1,000, and the additional investment is $500.

The fund risk profile is “moderately conservative and the expense ratio is 1.5% – That is how much of the fund is used for administrative expenses. This fund can be used to secure a loan with Stanbic IBTC Bank.

Read Also: Naira Trades Flat Across FX Markets amidst Uncertainties

How Weak Naira Affects Your Income, Assets, Finances