6 Most Effective Ways to Invest During Inflation and Accumulate Wealth

November 10, 2022
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6 Most Effective Ways to Invest During Inflation and Accumulate Wealth

Are you looking for the best way to dodge sapa and beat inflation? Read this article to find the multiple investment opportunities at your disposal during inflation.

Introduction

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As a Nigerian, you're likely to spend more than 948,737.27₦ per month when you're a family of four. That amount doesn't even include the cost of renting.

The cost of living is rising quickly due to increasing levels of inflation. You thus need to find ways to invest in inflation and survive the rising cost of living. But what exactly is inflation?

Here's another question: When did you go food shopping last?

Today, 1 kg of beef with bone will cost you 1,508₦ compared to 1,380₦ in 2021. An unsliced loaf of bread costs about 412.3₦ today, as opposed to 331.76₦ in 2021.

As you can see, food prices are higher than before. Initially, you could buy more goods with each unit of currency. However, today, the same units of currency are buying fewer goods. That's inflation.

Inflation refers to a sustained rise in the prices of goods and services in an economy. A currency unit can only buy fewer goods or services when the general price levels go up. Rising inflation leads to a reduced purchasing power of money, which affects your finances. You need more money to buy more goods.

So how do you get more money during inflation? Simple - ensure you invest in inflation and accumulate wealth.

But before that, let's understand in detail the impact of inflation on your finances.

3 Ways Inflation Affects Your Finances

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1. Inflation Lowers the Value of Your Savings

Do you have a savings account with too much money? Rising inflation makes your savings worth even less. But that doesn't mean you need to withdraw everything, including your emergency fund.

Savings won't make you wealthy easily. However, your cash-in savings account protects you financially when the need arises. So, what can you do with more idle cash than you need for an emergency? Consider asset investments, and your money will have more value during inflation.

2. Inflation Lowers the Buying Power of Your Finances

Your ability to buy more with your money reduces when inflation levels rise.

If you've gone to the supermarket lately, you may have noticed that the price of almost all commodities has gone up, and your money can only buy less than before. Alternatively, the groceries you buy from vendors seem lesser in quantity compared to last year.

Generally, you will pay more for fewer goods today due to inflation. That's why you should invest in inflation, to get more value for your money.

3. Inflation Reduces the Value of Your Long-Term Bonds

Rising inflation has effects on your investments. It might not be possible to know how inflation can affect all your investments, but the value of your long-term bonds does decline.

Remember, long-term or fixed deposits pay a fixed income yearly. Therefore, inflation means your fixed amount won't go as far.

Instead of fixed deposits, you could consider stock investments that offer a decent hedge against inflation. Stocks generate returns above the rising inflation.

If you're a long-term investor, you can consider investing in a broadly diversified portfolio of low-cost stocks.

Best Investment Options in Nigeria during Rising Inflation

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You can't predict when inflation levels are coming down. That's why you need to invest during inflation to beat it.

But before making any decisions, you need to do a lot of research. That way, you will be prepared to meet your financial goals, choose the best investment, and avoid losses as inflation bites.

Investing in assets brings returns that outpace the inflation rate. Don't keep all your cash in the bank. Withdraw the idle money from your account and invest in diversified digital assets such as stablecoins and bonds.

Portfolio diversification is of utmost importance here. Below is a list of diverse investment options you can consider to beat inflation in Nigeria:

  • Buying stocks
  • Investment in real estate
  • Buying commodities
  • Fintech investment packages
  • Cryptocurrency
  • Bonds

1. Buying Stocks

Buying stocks in Nigeria is one of the best ways to invest in inflation and beat it. When you buy stocks and inflation rises, the price also increases, leading to more profits. Ensure you invest with strong companies that enjoy pricing power and high entry barriers.

Check for companies in Nigeria that deal in strategic sectors like hard, fast-moving consumer goods, which bring more income during inflation. FMCGs stocks beat inflation and earn value for your money. You can invest in the stock market and earn 7% to 10% returns on your investment.

2. Investment in Real Estate

Do you have huge amounts in your bank that are earning you nothing? Real estate investment is capital-intensive but a reliable option to invest in inflation.

When levels of inflation rise, property valuations also rise. So, as a landlord, you can charge a higher rent and earn more. You can buy properties directly or consider real estate investment trusts in Nigeria.

3. Buying Commodities

Inflation often happens due to fluctuating supply and demand of some commodities. The prices of certain commodities rise during inflation. So, if you're a commodity investor, you stand to benefit more during high inflation.

You can buy a commodity like gold, whose value tends to rise with inflation. Investing in commodity-focused funds that invest in derivatives associated with specific commodities or commodities is a good investment during inflation.

You may also consider stocks from commodity-producing companies like miners and oil producers. Such companies generate higher revenue and profits when inflation rises. But keep in mind that commodities are highly volatile and quite sensitive to changes in demand and supply.

4. Fintech Investment Packages

Multiple fintech companies in Nigeria offer savings and investment packages that spare you the impact of inflation. Such packages come in the form of mutual investment plans and can earn you more than 12% returns.

You can access investment packages from fintech companies with as little as ₦10,000 through mutual funds and bonds.

5. Cryptocurrency

Are you looking for an investment opportunity to get profits quicker? Today, cryptocurrency is among the best ways to invest in inflation, access quicker returns, and invest again.

The value of bitcoin and other cryptocurrencies in Nigeria is rising. If you're new to cryptocurrency, you can explore Pillow Fund for beginner-friendly investment options on the platform.

6. Bonds

You can buy Nigerian bonds and get good returns. Bonds come with regular fixed income, meaning they are a safe investment.

During inflation, bonds can attract higher rewards. Nigeria's Eurobond has earned up to 12.8% per annum. Private bonds in Nigeria also offer a good entry price. So, bonds are definitely a good way to invest in inflation and get guaranteed income.

How Does Inflation Affect Asset Values?

Inflation has both positive and negative effects on the value of assets. Do you have assets with fixed and long-term cash flows? Such assets perform poorly with rising inflation. The reason is quite simple: your future cash flows from fixed assets will have low purchasing power when inflation rises.

On the other hand, if you have assets or commodities with adjustable cash flows, they perform well as inflation rises. For example, property rental income goes up when inflation goes up. So, check the best ways to invest in inflation where your returns help hedge inflation's rising cost.

Pros and Cons of Inflation in Nigeria

Pros

  • Encourages people to buy and consume more today than later, which is good for the economy
  • Benefits fixed-rate debt holders like mortgages
  • Low and stable inflation enhances the growth of the economy
  • Benefits employees since they can push for wage adjustments

Cons

  • Purchasing power reduces when inflation rises, affecting the economy negatively
  • Higher prices lasting longer hurt retail consumers
  • Inflation discourages inflation
  • High inflation makes a country uncompetitive due to the high cost of products or services

Conclusion

The levels of inflation in Nigeria are rising every year. If you plan to invest in inflation, re-assess the available portfolios and diversify your investments.

Avoid keeping your capital idle when you can invest in real estate, bonds, or cryptocurrencies and hedge inflation. Money invested outpaces inflation and helps you accumulate wealth.

Plus, despite high inflation, you can earn up to 14% returns on the money you invest in Pillow Fund. Pillow invests your savings into the best blue-chip DeFi protocols on the blockchain networks, giving you guaranteed earnings in dollars, despite rising inflation in the country. Get started today!

FAQs

How long will it take for inflation to go down?

The central bank governor of Nigeria is optimistic that the inflation rate in the county will go below 17% by 2023.

Which assets do best during inflation?

If you seek to invest during inflation, real estate, commodities like gold, and stocks are the best assets to buy in Nigeria. But you should do enough homework to settle on the least risky investment for you. Pillow Fund helps you invest in crypto and get high returns on your savings.

What should I do to prepare for inflation?

  • Stock up on essential but non-perishable goods
  • Switch your running debts to fixed-rate
  • Don't hold excess cash
  • Create a diversified investment portfolio
  • Invest in alternative assets

Where should I put my money in times of inflation?

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