When it comes to investing and building a lasting wealth, professional investors advise that you spread your money around different assets classes – that is, “diversify” your investment. Why? because it’s often believed that diversification protects you from losing all your money during market swings.
Besides, the pending devaluation of our local currency against major foreign currencies means that your investment in Naira denominated assets alone – stock, properties, or bond – may expose you to the high risk of putting your eggs in one basket. Just recently, it was all over the major newspaper headlines that the CBN might float the Naira; what this means is that the exchange of USD to Naira will be determined by market forces with economic analysts predicting a potential double-digit growth in the price of essential commodities, this was eventually tamed by the regulatory body.
My question is, what if it was true? whether you own stocks, treasury bill, bond, or real estate, as long as your assets are in Naira, your portfolio would have lost value relative to the USD.
Having a lot of investments doesn’t mean diversifications, you need to understand the least talked about categories of diversifications beyond equities, real estate, and fixed income securities. This is diversifications away from local currency assets to the US dollar-denominated assets.
As Nigeria economic risk worsens, it makes more sense to suggest foreign assets diversifications; where one diversifies and build short or long term foreign currency portfolio.
4 reasons I diversified into US dollar portfolio:
If you want to know why putting your money into foreign currency assets matters, there are interesting reasons: