In our last edition, we showed you something uncomfortable. A savings account offering a 7% return sounds like a win, until you place it next to an inflation rate of 15.93%. In real terms, your money lost purchasing power. Your account balance grew. Your wealth did not.
Understanding that gap between nominal return and real return is essential. But understanding it is not enough. The next question is the one that actually matters, what do you do about it?
This edition covers the main investment options available to Nigerian retail investors and how each one holds up against inflation.
1. Money Market Funds
A money market fund pools the contributions of many investors and places them into short-term instruments such as treasury bills, commercial paper, and interbank placements. The fund earns a blended yield on these assets and passes the returns to investors, usually on a daily basis. They are easy to access through licensed fund managers, require low minimum investments, and offer the flexibility of withdrawing your funds at short notice.
2. Treasury Bills (T-Bills)
Treasury bills are short-term debt instruments issued by the Central Bank of Nigeria on behalf of the Federal Government. They come in three tenors, 91 days, 182 days, and 364 days. When you buy a treasury bill, you are essentially lending money to the government for that fixed period and receiving a predetermined return at the end. T-Bills are among the safest investments a Nigerian investor can access.
3. FGN Savings Bonds
FGN Savings Bonds are issued monthly by the Debt Management Office (DMO). They are specifically designed for retail investors and come in two tenors, two years and three years. Interest payments are every three months. Like T-Bills, the risk is very low. The Federal Government is the issuer, and the instrument is backed by the full faith of the Nigerian state. For investors who want a regular and predictable income stream and are comfortable holding their funds for a fixed period, savings bonds can be a useful investment.
4. Dollar-Denominated Assets
The naira has lost significant value compared to the dollar over the past several years, holding all your savings in naira exposes you not just to inflation within Nigeria, but also to the risk of naira devaluation which reduces your global purchasing power. Dollar-denominated assets include Eurobonds, dollar savings accounts, and exposure to US stock market.
5. NGX Equities
Equities represent ownership stakes in companies listed on the Nigerian Exchange (NGX). When you buy shares in a company, you participate in its earnings, its growth, and its dividends. Over the long run, equities have historically delivered the strongest real returns of any asset class.
The reason equities tend to beat inflation over time is because companies are not passive holders of cash. They employ people, produce goods and services, raise prices when costs rise, and grow their earnings alongside the broader economy. In this way, equity ownership gives you a claim on real economic activity, not just a fixed nominal return.
Quick Reference
| Investment | Liquidity | Inflation Protection | Risk Level |
|---|---|---|---|
| Money Market Fund | High (daily) | Moderate | Low |
| Treasury Bills | Medium (fixed tenor) | Moderate | Very Low |
| FGN Savings Bond | Low (locked in) | Moderate to Low | Very Low |
| Dollar Assets | Variable | High (naira hedge) | Medium |
| NGX Equities | High (listed) | High (long term) | Medium to High |
The Takeaway
There is no single investment that solves the inflation problem completely. The right allocation depends on your goals, your timeline, and how much risk you can comfortably take.
What is clear is that keeping all your money in a standard savings account, and doing nothing, is itself a choice. And as we showed in the last edition, it is a choice that has historically cost Nigerian savers real purchasing power year after year.
The first step is simply to understand your options.
The second is to act on that understanding.
Sources: Central Bank of Nigeria (CBN), Debt Management Office (DMO), National Bureau of Statistics (NBS)