An investment can grow in naira and still buy you less than it did when you started. The number on your statement is only one part of the story.
Imagine you invest ₦100,000 and receive ₦115,000 after a year. Your nominal return is 15%. If the things you buy have become more expensive over that year, your purchasing power has grown by less than 15%. If prices rose faster than your return, it fell. These figures are an illustration, not current rates.
Start with the money you actually receive
A quoted yield may exclude management fees, trading costs, transfer charges and taxes. Ask whether the figure is before or after those costs, and whether the return is guaranteed, projected or based on past performance. For a fund, read its fee schedule and ask how you can withdraw.
Match the currency to the goal
If you will spend the money in naira, compare the return with the prices you expect to pay in naira. If the goal is a dollar-priced tuition bill or an imported asset, a naira return alone will not tell you whether you are closer to that goal. Exchange rates can move in either direction, and converting currencies has costs.
After costs, inflation and the currency of your goal, how much progress have you really made?
A simple check before you invest
- Write down the amount you put in and the amount you expect to receive after all known charges.
- Ask when you can access the money and what an early exit would cost.
- Compare the expected outcome with the goal you are funding, in the currency of that goal.
- Test a less favourable outcome before deciding how much to commit.
A higher headline yield may still be useful. It just needs to be understood alongside the risks and costs that determine the return you keep.
Sources and method
Means by ActiveMeans. Educational information, not personalised investment advice. Investments can lose value.
← Back to Means