Most wealth is built by compounding returns over time (Eleanya Eke. Founder/CEO, Rise). But what is Compound Returns? Let's try to break it all down. Compound Return is the cumulative effect that a series of profits or losses have on an original amount of capital over a period of time. Compound Returns are calculated annually.
Albert Einstein was reportedly quoted as stating that compound interest (or compound returns) is the most powerful force in the universe (Financial Planning Association).
The reason I have included this here is to simply introduce us to the fact that one of the very important things we should consider is how our deposits can grow by positive compound returns. Look for ways you can grow your money through good financial institutions or a platform that's good at it.
Stocks
Stocks are small units of ownership in a business that you or anyone can purchase. When you purchase one of these units or stocks, you become a shareholder in the business, meaning you own a small piece of the company whose shares you’ve purchased. Another name for stocks then is shares
The primary reason people choose to buy stocks or shares in any business is so that they can earn a return on their investment into a company. There are two ways you can earn returns from stocks: Dividends and Capital Gains.
Despite the economic ups and downs, the stock/share market has consistently proven to be a good place to invest and save for the future. When you invest in stocks/shares, you're putting your money into a business that, if it is a good one, should grow in value and give you a lot more than invested in the long run.
Naira Investments are not Helping you
Investments that have returned in Naira have generally underperformed recently. Treasury bills have returned below 10% per annum, savings accounts have earned next to nothing and most investments in Nigeria have struggled to make returns between 7-12%. This is majorly due to the rising inflation rate which currently sits at 15%-17%, monetary policies, and other economic factors.
The high inflation rate means that the little returns made from Naira investments are wiped out over time. Unfortunately, this high inflation rate may continue to rise as recent government policies have not done enough to check the rising tide.
Coupled with the high inflation rate is the uncertainty surrounding the devaluation of the Naira. If the naira is devalued, your investments in Naira would naturally also be of less value which is bad for your future. This is why I say, Naira investments are not helping you. Our currency has declined roughly 13% every year since 1972 and has had to be devalued periodically more times than I can count (Eleanya Eke CEO, Rise Invest).
Even people like Alhaji Aliko Dangote have run into this problem, with dramatic swings in his net worth, cost of doing business, and value of his investments due to volatile local currency and devaluation problems. In response, he has announced he is opening a family office in New York and investing 60% of his assets in the US in order to protect the long-term wealth of his family. Well, what about those who want the same protection, long-term stability, and global growth investments but either cannot or do not want to set up a family office abroad?
It's just that most of us do not consider this. Now you know.
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