How to Diversify and Grow your Portfolio in US Dollars
When it comes to investing and building a lasting wealth, professional investors advise that you spread your money around different assets classes – that’s, “diversify” your investment. Why? because it’s often believed that diversification protects you from losing all your money during unexpected 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 had subtly devalued the Naira from N360 to N380 to the US dollar which 5.5% fall in value.
As of this update, the US dollar, in the parallel market, sells for N420, 16.6% fall with the futures market already reflecting a further fall by as much as 38.3% to N500+. No thanks to the COVID-19 pandemic that has crippled business activities across the globe, hence drive oil demand to historic low as countries follow the lock-down rule.
This is just one of the unexpected events that expose us to sudden economic shocks. The truth is whether you own stocks, treasury bill, bond, or real estate, as long as your assets are in Naira, your portfolio is still in one basket and exposed to exchange rate shock.
Having a lot of investments doesn’t mean diversifications, you need to understand the real 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 you should diversify into US dollar portfolio:
If you want to know why putting your money into foreign currency assets matters, there are interesting reasons:
- We are oil-dependent and are largely exposed to sudden shock that follows lower prices. Based on historical antecedents, lower oil prices always exposes the economy; equities, real estate, even banks’ asset qualities are wiped out.
- Different types of investments are affected differently by world events and changes in economic factors such as interest rates, exchange rates and inflation rates, so it makes sense to diversify into assets to take advantage of longterm USD/NGN exchange rate appreciations; we call this hedging.
- Foreign diversification enables you to build a portfolio with generally less risk than the combined risks of one-currency assets.
- If your portfolio is not diversified, it may carry the unnecessary risk of being affected by inflation.
Private Investors is here to help you diversify and build USD assets. We are a community of traders that trade US stocks for capital appreciation.