At the end of 2015, 1 U.S. dollar was worth N199, and today, it is worth N463(parallel market). This shows that the concept of devaluation and inflation is not very uncommon. Devaluation happens when a country deliberately reduces the value of its currency relative to a standard currency such as the US dollar. Generally, a devaluation is likely to result in inflation (a rise in prices of products) because it becomes more expensive to import materials for production, and imported items now cost more than they used to.
If your goal is to effectively protect your money from losing value in response to economic outcomes, then saving it is never enough. When you save money, you can watch it grow over time, but what happens when there’s a devaluation of the currency or inflation? These are some ways you can hedge against currency devaluation.
1. Invest in real estate
Real estate investments have multiple benefits aside from being a lucrative source of passive income. It is an asset value that always appreciates and can be leveraged to build wealth over time. One way to protect the value of your money is to include this in a well-diversified investment portfolio. It is a safe financial investment that gives you more control over the outcome. You not only hedge against inflation but the monetary value of your investment is also protected because property values always increase.
2. Invest in other currencies
Investing in funds denominated in other currencies is another way to protect the value of your money. It is advisable to invest in a standard currency like the US dollar because it is relatively stable and acceptable for trade all over the world. By just saving in multiple currencies, you can lose on exchange adjustments when buying or selling. But by investing in assets denominated in multiple currencies, exchange losses are mitigated, and even when the naira is devalued, the purchasing power of your investments remains intact.
3. Invest in securities
Another way to ensure your money’s value is preserved is by investing in securities. Investing in the money market (treasury bills, certificate of deposits) or capital market (equities, bonds, derivatives) for the long run earns you interest significant enough to offset the effect of a devaluation or inflation. Your investment mix ultimately depends on your risk tolerance, but by creating a well-balanced portfolio that mitigates risk and increases returns, you’re more likely to boost your purchasing power.
OVERWOOD exposes clients to safe, high-yield securities and a stable currency. With OVERWOOD dollar, you can start saving in dollar-denominated instruments and earn daily compounding interest on your saving. Not only do you preserve the purchasing power of your wealth, but you also take a step closer to achieving financial freedom.
Visit overwood.ng to get started.