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Before you change all your ₦ savings to $, read this thread
While I think the “convert all your ₦ to $” mantra makes sense when you look at how the naira has performed in the past, I think this statement is a bit too generalized & can be misleading if not given proper context.
While I think the “convert all your ₦ to $” mantra makes sense when you look at how the naira has performed in the past, I think this statement is a bit too generalized & can be misleading if not given proper context.
Here’s my reasoning for this:
Over the last year, the naira has been very unstable. With the naira rising as high as 500 in November. If you need your money in the short term, i.e. in 3-6 months or even up to a year; converting all your naira to dollar might be not be the great
Over the last year, the naira has been very unstable. With the naira rising as high as 500 in November. If you need your money in the short term, i.e. in 3-6 months or even up to a year; converting all your naira to dollar might be not be the great
advice you think it is.
Case in point, back in August, you needed N475 to buy $1. Today, you still need N475 to buy $1
You might be thinking: well if I had converted all my naira to $ in August, at least my money would be secure. But that would be wrong. Here's why:
Case in point, back in August, you needed N475 to buy $1. Today, you still need N475 to buy $1
You might be thinking: well if I had converted all my naira to $ in August, at least my money would be secure. But that would be wrong. Here's why:
There's this thing called bid-ask spread.
The bid is the price you buy dollar while the ask is the price you sell dollar to get naira. The bid price is (almost) always higher than the ask price.
This means that when you’re converting ₦ to $, you do it at the bid price.
The bid is the price you buy dollar while the ask is the price you sell dollar to get naira. The bid price is (almost) always higher than the ask price.
This means that when you’re converting ₦ to $, you do it at the bid price.
So, when the bid price is 475, the ask price can be as low as 460 or 465 or 470 which is a spread of 10 per $.
So, if you bought $1 at 475 in August and convert the $ back to naira today, you would get 470 and not 475 even though the bid price/rate is still 475, the rate
So, if you bought $1 at 475 in August and convert the $ back to naira today, you would get 470 and not 475 even though the bid price/rate is still 475, the rate
you’ll use to convert dollar back to naira is the ask price which is lower than the bid. This means, for every $ you change, you’ll lose N5
Worse still, if you had bought dollar at 500 in November and converted last week, you would have lost almost ₦30 for every $ converted.
Worse still, if you had bought dollar at 500 in November and converted last week, you would have lost almost ₦30 for every $ converted.
So, to get your money back, you would need to wait for the bid price to rise so much that the ask price would be the old bid. As in, if you bought when the rate was 475, you need to wait till the rate gets to 480 or 485 before you can get your ₦ value back.
If that doesn’t happen in the short term, you would lose money.
You might be thinking: "well that’s just for the short term, if I hold for the long term, my money should be fine"
You could be right. But here's the thing, back then in 2016/2017 when naira first did gymnastics
You might be thinking: "well that’s just for the short term, if I hold for the long term, my money should be fine"
You could be right. But here's the thing, back then in 2016/2017 when naira first did gymnastics
naira fell as low as 450/480 before CBN set it as 360. If you had bought then and decided to wait till naira rose back to that level, you would have had to wait for almost 3 years for it to stabilize.
What's the point of this thread then?
To tell you that although the idea of
What's the point of this thread then?
To tell you that although the idea of
converting all your naira to dollar
looks good on paper, it is a high risk move which may or may not pay off when you need your naira back. When you look back and give it context, it might not be the best advice for everybody.
looks good on paper, it is a high risk move which may or may not pay off when you need your naira back. When you look back and give it context, it might not be the best advice for everybody.
You need to consider a lot more things than just "the naira will always be falling". It's not always that simple. The naira is too unstable to make such generalizations.
“Convert all your naira to dollar” is not a complete investment strategy. There are more things to consider.
“Convert all your naira to dollar” is not a complete investment strategy. There are more things to consider.
One of the ways to help is, instead of just converting your naira to dollar and holding it cash or in a bank account, invest in dollars. I did this thread some time back talking about some decent investment options you can explore. https://twitter.com/je_dna/status/1265922545343135745
