Escape Naira Devaluation, Inflation: Invest in Dollars’s Investing Guide Series

When Jay Onayume’s company offered its oldest employees voluntary retirement in early 2019, with a juicy package attached, he couldn’t resist the temptation.

Though he still had four years to go, Onayume was worried that the longer he stayed, the less the real value of the final payout he was going to get, what with accelerating inflation and the perennial loss of value by the naira against international currencies. At a time when most of the things one needed were outside Nigeria’s shores, it was going to be a losing battle.

Onayume reasoned that if he stayed on, he would even be taking less in real terms with prospects of another oil boom for Nigeria very slim. So he took the plunge and received the golden handshake.His retirement package included cash benefits of about 60 million naira that was paid into his account days after he officially stopped working. He was also expecting an additional 15 million naira from his retirement savings account with a pension fund administrator.

Onayume’s concern was how to preserve the value of the money he received by hedging against inflation and depreciation. He reasoned he could stay ahead of inflation by doing fixed deposits, buying bonds and treasury bills. But he had no answer to sudden currency devaluations, which could be triggered by any severe downturn in the price oil, Nigeria’s mainstay.

Inflation, now at 14.9%, taking a huge toll on savings.

He was expressing these concerns to a friend one day, and the fellow, a financial journalist, told him to set up a domiciliary account and convert at least half of the money to dollars, to start with. “That would protect you substantially, and in addition you can make safe dollar investments,” the journalist said. “In fact, you may find out that whatever you lose in naira you can recover by selling what you gained in dollars.”

For Onayume, it turned out to be a prescient and unforgettable piece of advice. With the exchange rate at about 350 naira per dollar at the time in the parallel market, he was able to buy as much as 80,000 dollars over time, which he lodged into his domiciliary account.

The rest of the naira funds he spread between fixed deposits, commercial papers, bonds and treasury bills. He avoided buying shares. “I don’t understand stocks,” Onayume always told his friends, recalling occasions when he tried and burned his fingers with huge losses.

In the first months following his retirement in early 2019, Onayume earned much more in monthly interests than what used to be his monthly salary. All he had to do every morning after breakfast was to go through the news, then through his portfolio of investments, and then take a walk in the park or something. Then back to the news later.

Towards the end of 2019, after the central bank took certain measures that forced down yields across the money market, Obayume noticed his interest earnings dropped substantially.

Suddenly savings rates were now hovering below 1.5, fixed deposits were paying even less trifles and treasury bills rates were at their decade nadir: all were returning negative real rates at a time inflation had reached 14.9 percent.

A terrible time indeed for saving and investing, especially given the doldrums that hit Nigerian stocks earlier in the year.

While stocks have seen a rally in the later part of 2020, it appears all driven by people escaping the prevailing low interest rates in the fixed income segment of the financial market. It’s difficult to say if that rally will be sustained with the economy officially in recession due to the devastations wrought across board by the coronavirus pandemic.

Anyway, stocks are a no go for our friend Onayume. Well, yes and no. Because he used his dollar deposits to invest in international mutual funds, which include equities (stocks), fixed income (bonds and treasury bills) as well as diversified funds (a mix of both and more, with some including commodities).

While Onayume’s fixed income investments have produced returns averaging 5 percent a year, the equities have turned in gains ranging from 20 percent to 70 percent. These days when people are complaining about how bad things are, he feels like a foreigner.

But anyone can do it too. And you don’t need Onayume’s large payout to start. You can begin small, putting aside set amounts monthly or making occasional lump sum purchases. Click here to find out more.