If you are a game of thrones fan, you should be familiar with the phrase “winter is coming”, for Nigerians it is rising inflation analysts warn about, but savvy investors can take positives out of it.
Food prices rose following a partial border closure which started in August and this caused inflation to rise to 11.24 percent, the highest in four months.
Nigeria has recently closed its borders completely so local food production can improve but this would cause prices to go up as festivity approaches, analysts warn, while a possible increase in Value Added Tax (VAT), as well as the implementation of the new minimum wage, could keep inflation elevated.
Being a shrewd investor involves figuring out ways to mitigate losses emanating from the situation beyond your control if you cannot make money from such.
Here are ways to minimize risks from rising inflation and still grow your wealth.
Use longer-term, fixed-rate debts
One of the typical features of inflation is that debtors benefit and creditors lose. This is because in periods of inflation the value of money falls so that what used to be purchased for a certain amount would require more money to acquire.
If you have a project which must be financed through debt, endeavour to go for the ones that require a longer time to repay and costs a fixed rate of interest.
This approach would mean it would require less to repay your debt as the value of money keeps falling. For this to work, however, you must be certain inflation would not fall below the agreed-upon interest throughout the debt.
You must also take caution to take debt only when you necessary so you are not unduly burdened.
Robert Kiyosaki says taking a debt with a fixed rate of interest to finance a cash-flowing asset that covers the debt payment, using less of one’s money can increase returns on investment.
“The reason my investments and income grow is because I purchase assets that hedge against inflation,” Kiyosaki says.
Read also: The future of real estate in Nigeria
Save smart, seek high yielding options
It is easy to think financial prudence means piling cash in the bank but it is not exactly a smart move when inflation is rising.
Banks usually take depositors money to invest in instruments that offer returns which beats inflation and in turn pay rates lower than inflation to customers who keep money with them. This means the value of your cash at bank erodes during rising inflation.
Look for savings products (or assets) that guarantee rates equal to or higher than inflation so you are preserving or growing wealth.
Buy now, enter future/forward contracts
If you are a business person dealing with items that will be affected by inflation in the future, so far they are not likely to become out–of–date or spoil before the rising inflation trend reverses, you can buy such items and store for future use or resale.
Individuals can also adopt such measure to avoid buying important items at a higher price later.
Businesses can also lock in longer-term supplies (that is, enter agreement for suppliers to deliver certain items at an agreed-upon price and quantity on a specific future date) to reduce cost and protect their future returns.
Buy Real Estate
In times of inflationary pressure owing assets like lands, houses or other buildings can earn you attractive returns because the price (or rent) on these assets usually go in the same direction with inflation.
As the general price level rises, the interest rate is increased to match inflation and this means properties can give owners higher returns.
