Recession, Inflation and How to Insulate Yourself in 2017


Friday, December 16, 2016 9.58 PM / Ologbon-ori Taiwo 

“Inflation is as violent as a mugger, as frightening as an armed robber, and as deadly as a hit man.” –Ronald Reagan
Rising Inflation is one battle every one of us needs to brace up for in year 2017- The cost of living is rising faster, going by inflation statistics. Everybody would be affected by price increase, averaging 14.13% in the last 12months. The silent killer has doubled its figures in the last 12months, moving from 9.40% to 18.30% as at October 2016. Core inflation rose to 18.30% in October, from 17.90% recorded in September due to hike in prices across basket of foods and other basic essential services- And the consensus projections from analysts show no relief in near term- this shows how bearish the macroeconomic fundamentals are and how the outlook in the year 2017 would be.

With all indications, we would start year 2017 with high inflation figure, which may be close to 20% by February 2017 - with strong possibility of rising further- it is very difficult for an individual to control inflation, meaning no one can really control inflation individually- but it is possible to protect yourself against it ahead the New Year with right investment-strategy and tough decisions.

Those who choose savings over investment-savings plan as a result of recession would never be able to defeat inflation- simply because there is no savings product(s) that offer returns above 18%. Not only that, inflation at this rate erodes the value of money in savings and weakens your purchasing power faster.

This technically suggests that the only way to beat/defeat inflation is to put your money into an investment vehicle that would retain value and strengthen purchasing power.  But the BIG question is which one of the investments offers such possibilities?

The first good one that comes to mind would be short-term T-Bills, which pays interest of 17.00% per annum as at today.

However, analysis revealed that equity-based investments have performed unimpressively, given the performance in the last one year- the returns if there was any, is trailing inflation figure on month-on-month basis.  See the table below.....

The need to defeat inflation in 2017
The above table might encourage you to live your money in a savings scheme- But you must also consider how risky it is not to invest in the face of growing inflation.

Remember inflation is a silent killer. The cost of 'pure/sachet-water' was N5.00 last year, today is N10.00- and this pattern of price increase cut across everything you use or consume as an individual.

You can now see how critical it is that your money must grow at least as quickly as inflation does. A retiree or pensioner and low income earners must take this very seriously. If income doesn’t keep up with inflation, your income won’t be enough to cover your steadily rising expenses.

Defeating inflation in 2017
To retain value, your money must grow at least 2% per month as 12months average stands at 14.13%. And to retain value and keep up with inflation, keep these tips in mind.

Control your personal inflation- Change your lifestyle
How you manage your lifestyle in 2017 can enable you to control the impact of inflation on your income and boost your purchasing power.  Every spending you cut today may alter your financial situation tomorrow.

Inflation only hits you more when you spend, so it is important to reduce your spending habits as a way of lowering your exposure to inflation.

For instance, reduce your fuel consumption to reduce your exposure to fuel inflation, which had gone up by 53% in less than one year. You may need to find new cheap means of transportation to work. Below are other key tips that may help you.

1.       Buy only quality and generic items and shun brand names

2.      You can downsize on your house rent- most likely your rent expires early next year, look for cheaper rent within same location. For instance, i am in the process of moving to a N300,000 apartment from N400,000.

3.      Join cooperative institutions and learn how to do bulk-purchase via cooperative mechanism

4.      Reduce the number of cars you have - they are not earning assets

5.      Reduce eatery meals and club expenses

6.      Do not patronise Aso-Ebi

7.      Stop going to where you always spend more money, you may consider to start going to where you would make more money

8.     Betting is not an investment, it is advisable to stop it if  you are not lucky enough with it

9.      Reduce how much you will spend on vacation, if you must go on vacation

Invest wisely- create a portfolio of Equities, T-bills and FX
You must have saved a lot from a change of spending habits, then you would need to grow the money by investing it wisely. You will need basket of investments if you are a working class. To spread your risk, I recommend equities (20% of your available money), Short-term T-bills (50% of available money) and FOREX Trading (30% of available funds)

Investment Strategy:
Equities: Buy only defensive and dividend paying bluechip stocks for long term investment position e.g Nestle, DANGCEM, Guaranty, Zenithbank, Flourmills etc.

FOREX Trading:
If you do have the skills to do online FX trading from the comfort of your home, you can buy Dollar from an 'Aboki' or a ‘Mallam’ and deposit it in your domiciliary account.

Plan your expenses ahead and lock it down on time
A spending plan gives you absolute control over your money. It clearly show how much money you have, list of expenses and where you can make a cut to safe-up extra cash

It is important to add-up all your fixed expenses and major day-to-day expenses- then make payment ahead before next increase in price.

For instance;

         If you ride on BRT to work, you may buy your 2-6months tickets ahead if you can afford it;

         You can pay your child school fees ahead;

         You can buy the major non-perishable food-items like Gari, Palm Oil, Groundnut oil, Dried Pepper etc;

         You can also buy ahead the servicing Oil for Cars and Generators;

         Small scale companies can buy ahead, Office stationeries  diesel and key spare parts for machineries;

         Toiletries like tissue, Laundry Soaps, Dish Wash, Toilet Wash and Hand wash are always cheaper in bulk

If you are to borrow, consider zero interest loans first
It is advisable to organise Esusu group, where everybody in the group contributes money collectively on a monthly basis for one another as a loan. This is a zero-interest loan, which can be used to finance an urgent and pressing personal needs- You have to be credit-worthy and you may also need to look for a group of credit-worthy and well known people around you to achieve this.

The aim is to insulate you against raising inflation, which may hit 20% by Year 2017.

And all depends on how you spend, save and invest your money. Putting chunk of your money to work through investments and being mindful of your needs and wants can really insulate you against inflation in 2017.

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