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The harsh reality of inflation turns everyday necessities into luxuries. This sneaky economic challenge gradually erodes your purchasing power, making it difficult to maintain a healthy bank balance. If left unchecked, inflation can affect your ability to afford the goods and services that you want and need.
How Does Inflation Affect Your Savings?
Inflation can erode your savings over time, especially if you’re simply keeping your money in a low-interest savings account. As prices rise, the value of your savings decreases. For instance, if you save N100 today and inflation is 37%, the same N100 will only buy you N73 worth of goods and services. However, all hope is not lost.
There are strategies you can use to lock in the value of your money. This is known as hedging.
Hedging Against Inflation
Hedging is a strategy that merchant banks such as Coronation Merchant Bank can apply to protect you from financial losses due to adverse price movements. In the context of inflation, hedging involves investing in assets that are likely to appreciate when prices rise, for instance, investing in assets like treasury bills and stocks. Let’s deep dive into popular hedging strategies:
For people who frequently deal with foreign exchange, there are also hedging strategies to mitigate the risks associated with fluctuating exchange rates. These include:
Forward contracts let businesses or individuals lock in an exchange rate for future transactions. This provides certainty in pricing and budgeting, helping to protect against adverse currency movements that might hurt profits.
Inflation can be a significant financial challenge. By understanding how it works and implementing effective hedging strategies, you can protect your wealth and ensure that your money doesn’t lose its purchasing power over time. To get started, consider consulting with a financial advisor to determine the best hedging strategies for your individual circumstances.
Contact a trusted financial advisor at Coronation Merchant Bank, today.
Contact Details:
Email:crc@coronationmb.com
Phone: +234 (0)1-2797640-43