The Nigerian economy is presently plagued by many challenges: high inflation, sluggish growth, currency depreciation and foreign exchange scarcity.  As a result, Nigerians now live under worsening cost-of-living crisis.

In times like these, it is common for people to focus on survival. Doing business is tough, jobs are not available and income levels are low; just enough to get by.  At other times, many don’t even earn enough to sustain a living. 

Just a handful of people will endeavor to make investments under the current economic climate. For those who are willing to do so, the challenge often lies in knowing where and how to do so.

Strategic investment decisions can help secure your financial future, and this article offers practical insights and strategies.

Whether you’re an experienced investor or just starting out, understanding how to navigate uncertain times is crucial for long-term success.

WHERE TO INVEST IN TURBULENT TIMES

Invest in Inflation-protected asset classes

As a general rule, protect your purchasing power in an era of rising prices by investing in inflation hedged asset classes.   These are assets that tend to increase in value or at least maintain its value in a period of inflation.  By either appreciating in value or generating above-inflation returns, these assets provide protection to investors.

Some known inflation-proof asset classes include the following:

Real Estate Investment

Historically property prices and rental income rise with inflationary trends.  So investing in residential or commercial properties with a view to earning regular cash flows provides a hedge against rising prices.  However, the problem with property investment is that the initial capital outlay needed to buy a property is often huge and could be unaffordable to the average investor.

A sure way of coming round this is through Real Estate Investment Trusts Scheme (REITs).  REITs   are a form of unit trust offered by companies that invest , own and manage real estate assets across  commercial and residential properties.  By buying units of their REITS, you become a part owner of the company and share in the profits.

If you’re not ready to buy property outrightly, consider Real Estate Investment Trusts (REITs) as an investment option. These vehicles allow you to invest in real estate without directly owning property, offering you dividends from rental income and potential capital appreciation from property value increases.

Inflation-indexed Bond:

Another alternative is to invest in inflation-indexed savings bonds. These bonds adjust the interest rate paid based on inflation rates, ensuring that your returns are not completely eroded by rising costs.  Treasury Inflation-Protected Securities (TIPS) in the U.S., or inflation-linked bonds issued by other countries, are specifically designed to protect against inflation.

The principal of these bonds increases with inflation, as measured by the Consumer Price Index (CPI), ensuring that the purchasing power of the investment is maintained. In Nigeria, FGN Savings Bonds offer a similar structure with inflation-linked interest rates.

Commodities

Commodities like gold, silver, crude oil, and agricultural products are among the best assets for hedging against inflation. When inflation rises, the cost of goods and raw materials tends to increase as well. Commodity prices often surge during inflationary periods, which can enhance returns for investors.  Consider using commodity exchanges to trade in commodities. 

Such exchanges, though relatively less popular are fast growing in Nigeria.  Notable amongst commodity exchanges in Nigeria are the Nigeria Commodity Exchange (formerly Abuja Securities and Commodity Exchange), Lagos Commodity and Futures Exchange and Afex Commodities Exchange.

You can hold commodities directly or through exchange traded funds (ETFs); either strategy will help you preserve value as price rises.

Defensive Stocks

Investing in equities, particularly in defensive sectors like consumer staples, and telecommunications, can provide inflation protection. These industries typically perform well even in times of inflation, as they offer essential goods and services that remain in demand regardless of economic conditions. Stocks in these sectors can provide dividends and growth potential.

Companies in these industries can pass on rising costs to consumers, helping maintain their profit margins, and therefore their stock value, even as inflation rises.