The impact of inflation on investment returns in Nigeria

What are the worst investments during inflation?

During periods of inflation, certain types of investments are more vulnerable to losing real value. The worst-performing investments in such environments typically include:

1. Long-Term Fixed-Rate Bonds: These investments offer fixed interest payments, which may not keep pace with rising prices. As inflation increases, the real value of the bond’s interest payments and principal repayment decreases, leading to a loss in purchasing power for investors.

2. Cash and Cash Equivalents: Holding large amounts of cash or investing in money market funds can be detrimental during inflationary periods. The returns on these assets often fail to outpace inflation, resulting in a reduction in the real value of the money over time.

3. Savings Accounts with Low Interest Rates: Traditional savings accounts that offer low interest rates are particularly susceptible to inflation. The interest earned is often insufficient to compensate for the loss of purchasing power due to rising prices.

4. Fixed Annuities: Similar to long-term fixed-rate bonds, fixed annuities provide predetermined payouts. If inflation outpaces these fixed payments, the real value of the annuity decreases, affecting the investor’s standard of living.

5. Non-Inflation-Protected Government Securities: Government securities that do not adjust for inflation, such as Treasury bonds without inflation protection, can lose value in real terms during inflationary periods.

Investors seeking to protect their portfolios from inflation may consider assets that tend to perform well during such times, such as stocks, real estate, commodities, and inflation-protected securities.

Who owns 90% of the stock market today?

The ownership of the stock market is highly concentrated among a small number of institutional investors and wealthy individuals. While exact figures can vary, studies and reports indicate that a significant portion of stock market ownership is held by:

1. Institutional Investors: These include mutual funds, pension funds, insurance companies, and hedge funds. Collectively, they own a substantial share of publicly traded companies, often controlling a majority of the shares in large-cap stocks.

2. Wealthy Individuals and Family Offices: High-net-worth individuals and family offices also hold significant stakes in the stock market. Through direct investments and private equity, they can own substantial portions of companies, especially in private markets.

3. Sovereign Wealth Funds: Some countries manage sovereign wealth funds that invest in global equities, further concentrating ownership in the hands of a few entities.

4. Corporate Insiders: Executives and board members of companies often own significant shares in their own firms, contributing to concentrated ownership.

While the exact percentage of stock market ownership held by these groups can fluctuate, it’s clear that a large portion of equity ownership is concentrated among institutional and wealthy investors, leading to concerns about market accessibility and equity for individual investors.

What is the 7% rule in investing?

The 7% rule in investing is a guideline suggesting that, over the long term, an investor can expect an average annual return of 7% after accounting for inflation.

This rule is based on historical data, particularly the performance of the U.S. stock market, which has historically returned about 10% annually before inflation and approximately 7% after inflation when considering a diversified portfolio.

The rule assumes that the investor maintains a consistent investment strategy, reinvests dividends, and holds investments over a long period, typically several decades.

While the 7% rule provides a useful starting point for estimating future investment growth, it is important to note that actual returns can vary significantly due to market volatility, economic conditions, and individual investment choices.

Therefore, investors should use this rule as a general guideline rather than a guaranteed outcome and consider their own risk tolerance, investment horizon, and financial goals when making investment decisions.

What are three negative effects of inflation?

Inflation, the rate at which the general level of prices for goods and services rises, can have several negative effects on an economy and its participants. Three notable adverse impacts include:

1. Erosion of Purchasing Power: As prices increase, the real value of money decreases, meaning consumers can buy less with the same amount of money. This reduction in purchasing power can lead to a decrease in the standard of living, especially for individuals on fixed incomes or those whose wages do not keep pace with inflation.

2. Uncertainty and Reduced Investment: High or unpredictable inflation creates uncertainty about future costs and returns, making it difficult for businesses to plan and budget effectively. This uncertainty can lead to reduced investment in the economy, as businesses may delay or scale back expansion plans due to concerns about rising costs and potential reductions in consumer demand.

3. Distortion of Price Signals: Inflation can distort the information that prices convey about the relative scarcity or abundance of goods and services. When prices rise rapidly, it can be challenging for consumers and producers to distinguish between genuine changes in supply and demand and those caused by inflation. This distortion can lead to inefficient allocation of resources, as decisions are based on inaccurate price signals.

These negative effects highlight the importance of maintaining stable inflation rates to ensure economic stability and protect the purchasing power of individuals.

What is the current inflation in Nigeria?

As of September 2025, Nigeria’s inflation rate has decreased to 18.02%, marking its lowest level in over three years. This decline from 20.12% in August is attributed to several factors, including improved food supply conditions and seasonal harvests that have alleviated some of the pressure on food prices.

The National Bureau of Statistics reported that food inflation fell to 16.87% from 21.87% in the previous month, contributing significantly to the overall reduction in the headline inflation rate.

The easing of inflation follows a period of high rates, with inflation peaking near 35% in December 2024. The government’s economic reforms, such as the removal of fuel subsidies and the unification of the exchange rate, have played a role in stabilizing prices.

Additionally, the Central Bank of Nigeria’s decision to cut interest rates for the first time since 2020 reflects a data-driven approach to monetary policy aimed at achieving single-digit inflation.

While the current inflation rate represents a positive trend, challenges remain, including weak consumer demand and fiscal constraints, which could impact the sustainability of this downward trajectory.

What is the 10/5/3 Rule of Investment?

The 10/5/3 rule of investment is a guideline used to help investors diversify their portfolios effectively while managing risk and achieving a balanced approach to asset allocation.

The numbers in the rule represent percentages of your investment capital allocated across different types of assets based on their risk levels and potential returns. Typically, the “10” refers to allocating 10% of your investment to high-risk, high-reward assets such as startups or speculative stocks.

These assets can generate significant returns but come with a high probability of loss, making it essential for investors to limit exposure to this portion of their portfolio.

The “5” in the rule represents investing 5% in moderately risky assets. These could include growth-oriented stocks, certain mutual funds, or sector-specific ETFs that have the potential for steady returns but carry moderate market risk.

By limiting exposure to 5%, the investor benefits from growth potential without risking too much of their portfolio on volatile investments.

The “3” stands for investing 3% in highly liquid or safer investments, such as government bonds, fixed deposits, or money market instruments.

These assets are less likely to generate high returns but provide stability and security to your portfolio, ensuring that a portion of your capital is preserved even during market downturns.

The 10/5/3 rule is not rigid but serves as a strategic framework for balancing risk and reward. It encourages investors to adopt a disciplined approach to diversification, avoiding the pitfalls of overconcentration in high-risk assets while ensuring that the portfolio still has the potential for growth.

The underlying principle is that riskier investments should constitute a small percentage of the portfolio, while safer and more liquid investments provide a foundation for long-term financial security.

Over time, this rule can help investors weather market fluctuations, minimize losses, and steadily grow their wealth without being overly aggressive or conservative.

What is the Average Return of Investments After Inflation?

The average return of investments after inflation, often referred to as the “real return,” is the actual gain that an investor receives after accounting for the eroding effects of inflation on purchasing power.

Nominal returns represent the raw profit from an investment without adjustments, whereas real returns reflect how much an investor’s money grows in terms of what it can actually buy.

For example, if a stock portfolio generates a 10% nominal return over a year but inflation is 4%, the real return would be approximately 6%.

Historically, real returns vary widely depending on the type of investment and prevailing economic conditions. Stocks, for instance, have often provided an average real return of around 6% to 7% per year over the long term, although this figure fluctuates with market cycles and economic stability.

Bonds and fixed-income instruments typically offer lower real returns, averaging between 1% and 3% after inflation, but they provide greater security and lower volatility compared to equities.

Real estate and commodities, depending on location and market conditions, can provide higher or lower returns relative to inflation, with some assets acting as hedges against rising prices.

Inflation is a critical factor in assessing investment performance because it directly reduces the purchasing power of money. Without accounting for inflation, investors may overestimate their wealth growth.

Understanding average real returns helps investors set realistic expectations, compare different investment types, and make informed decisions that align with their long-term financial goals.

Real return calculations also emphasize the importance of choosing investments that outpace inflation, ensuring that wealth accumulation is meaningful over time rather than merely nominal.

What Investment is Best During Inflation?

Investing during periods of inflation requires strategies that preserve the purchasing power of money while potentially benefiting from rising prices.

Traditional cash savings lose value during inflation because the returns from interest rates often fail to keep pace with price increases. Therefore, investors typically turn to assets that are more resilient to inflationary pressures.

One of the best investment options during inflation is real estate. Property values and rental income generally rise with inflation, providing both capital appreciation and a steady income stream.

Commodities such as gold, silver, and oil also tend to perform well because their intrinsic value often increases as the currency loses purchasing power.

Inflation-protected securities, such as Treasury Inflation-Protected Securities (TIPS) in the United States or similar instruments elsewhere, are specifically designed to adjust returns in line with inflation.

Stocks can also be favorable, particularly in sectors that can pass on higher costs to consumers, such as consumer staples, energy, and healthcare. Companies in these sectors often maintain profit margins even during inflationary periods. Diversifying across multiple asset classes can further reduce risk and increase resilience, as some investments may outperform while others lag.

In essence, the best investments during inflation are those that either appreciate in value faster than the inflation rate or generate returns that adjust with rising prices.

Investors must carefully balance risk, liquidity, and growth potential while focusing on assets that preserve and potentially increase real wealth over time.

How Does Inflation Affect Investments?

Inflation affects investments by eroding the purchasing power of money, which can significantly impact the real returns of an investor’s portfolio.

When inflation rises, the value of cash holdings diminishes because the same amount of money buys fewer goods and services over time.

For fixed-income investments like bonds and savings accounts, this effect can be particularly pronounced, as the interest earned may not keep pace with inflation, resulting in negative real returns.

Equities are influenced differently. While high inflation can increase costs for companies, some businesses can pass these costs to consumers, maintaining profitability.

Companies with strong pricing power, such as those in the consumer staples or energy sectors, often outperform during inflationary periods. Conversely, companies that cannot adjust prices quickly may see profit margins shrink.

Inflation also impacts investment strategies. Investors may shift toward assets that hedge against inflation, such as real estate, commodities, or inflation-linked bonds.

Long-term investors must consider the interplay between nominal and real returns, ensuring that their wealth grows in terms of purchasing power rather than just in numerical terms.

High inflation can lead to increased volatility in financial markets, affecting investor confidence and potentially causing shifts in asset allocation. Understanding how inflation influences different investment types is crucial for preserving wealth and maintaining portfolio performance during periods of rising prices.

What Are the Four Types of Inflation?

Inflation is generally categorized into four main types based on its causes and characteristics. The first type is demand-pull inflation, which occurs when aggregate demand in an economy exceeds supply. This excess demand drives up prices as consumers compete for limited goods and services.

The second type is cost-push inflation, arising from increased production costs. This could be due to higher wages, rising raw material prices, or supply chain disruptions. Companies pass these additional costs to consumers, leading to higher prices.

The third type is built-in inflation, also known as wage-price inflation. It occurs when workers demand higher wages to keep up with rising living costs, and businesses, in turn, increase prices to maintain profit margins. This creates a cycle of wage and price increases that perpetuates inflation.

The fourth type is hyperinflation, which is an extreme and rapid increase in prices, often exceeding 50% per month. Hyperinflation usually results from a collapse in currency value, excessive money printing, or severe economic mismanagement.

Each type of inflation has distinct causes and impacts, and understanding these differences is essential for policymakers, investors, and businesses when developing strategies to mitigate inflationary effects and protect purchasing power.

What is Most Likely to Happen When Inflation Increases?

When inflation increases, several economic and financial consequences tend to occur, affecting both individuals and the broader market.

At the most basic level, rising inflation reduces the purchasing power of money. Consumers find that the same amount of money buys fewer goods and services, which can lead to decreased real consumption if wages do not rise at a comparable pace.

This decline in purchasing power often triggers changes in consumer behavior, such as prioritizing essential goods over discretionary spending or seeking cheaper alternatives.

For investors, higher inflation generally leads to adjustments in portfolio strategies. Fixed-income investments like bonds and savings accounts often see negative real returns because their interest rates may not keep pace with rising prices.

Equities, particularly those of companies with limited pricing power, may also experience lower profit margins and reduced stock performance. Conversely, certain sectors such as energy, commodities, and consumer staples often outperform because they can pass increased costs to consumers.

Central banks typically respond to rising inflation by tightening monetary policy, such as increasing interest rates or reducing the money supply.

Higher interest rates make borrowing more expensive, slowing down investments and consumption, which can dampen economic growth. Additionally, currency values may fluctuate as inflation erodes confidence in the currency, leading to potential depreciation and increased cost of imported goods.

In extreme cases, rapid inflation can lead to economic uncertainty, market volatility, and social unrest.

Investors may flock to assets considered hedges against inflation, like gold, real estate, and other tangible assets, while avoiding cash and low-yield instruments. Understanding the implications of rising inflation is critical for both policymakers and investors to navigate these changes and protect wealth effectively.

What is the 7/5/3/1 Rule?

The 7/5/3/1 rule is an investment strategy aimed at guiding how investors allocate their assets to achieve a balanced approach between risk, growth, and liquidity.

The numbers in the rule represent percentages of an investment portfolio dedicated to different asset classes based on risk tolerance and investment objectives.

Specifically, “7” typically refers to the portion invested in long-term growth assets, such as equities or equity-based mutual funds. These investments are expected to provide significant returns over time but come with higher volatility.

The “5” portion is often allocated to moderate-risk investments like corporate bonds, balanced mutual funds, or real estate investment trusts (REITs).

These assets offer stable returns with moderate risk exposure. The “3” represents lower-risk investments, such as government bonds, fixed deposits, or other secure instruments, which provide safety and liquidity but limited growth potential.

Finally, “1” is allocated to highly liquid cash or cash equivalents, ensuring that the investor has immediate access to funds for emergencies or short-term opportunities.

The purpose of the 7/5/3/1 rule is to create a well-diversified portfolio that balances potential growth with risk management.

It encourages investors to commit a majority of their portfolio to growth assets while retaining a portion in safer instruments to protect capital and maintain liquidity. Over time, this strategy aims to generate sustainable returns while minimizing exposure to extreme market fluctuations.

What is the 25x Rule in Investing?

The 25x rule in investing is a financial planning principle used primarily in retirement planning to estimate how much one needs to save to maintain a desired lifestyle after leaving the workforce.

The rule suggests that an individual should aim to accumulate 25 times their expected annual expenses in retirement savings. For example, if someone expects to need $40,000 per year in retirement, they should aim for a total of $1,000,000 in savings.

The logic behind the 25x rule is grounded in the widely recognized 4% withdrawal strategy. This approach assumes that withdrawing 4% of retirement savings annually allows funds to last for a typical 30-year retirement while adjusting for inflation.

By multiplying annual expenses by 25, investors get a straightforward target to guide their savings and investment strategy.

The rule emphasizes the importance of long-term planning, consistent saving, and investing in assets that grow over time to accumulate sufficient wealth.

It also highlights the necessity of accounting for inflation, healthcare costs, and unexpected expenses. While the 25x rule provides a simple benchmark, individual circumstances such as lifestyle, risk tolerance, and retirement goals should be considered when planning for financial security.

What is the 3/5/7 Rule in Investing?

The 3/5/7 rule in investing is a portfolio management guideline used to determine an appropriate asset allocation based on investment horizon and risk appetite.

The numbers “3,” “5,” and “7” typically indicate the suggested maximum percentage of a portfolio that should be invested in a particular high-risk asset or a single investment to maintain diversification.

For instance, an investor might allocate no more than 3% of their total capital to highly speculative assets, 5% to moderately risky investments, and 7% to higher-growth opportunities.

The remaining portion of the portfolio would be placed in safer, more stable assets to protect capital. This rule encourages investors to spread risk across multiple investments, preventing overexposure to a single high-risk asset that could significantly harm overall portfolio performance.

By following the 3/5/7 rule, investors can pursue growth opportunities while maintaining a structured risk management framework. It is particularly useful for beginners or those managing diversified portfolios, as it provides clear boundaries for risk exposure and encourages disciplined investment behavior over time.

Who Benefits from Inflation?

Inflation affects different economic agents differently, and some individuals or groups may benefit under certain circumstances.

Borrowers are among the primary beneficiaries because inflation reduces the real value of debt over time. If someone has a fixed-rate loan, the amount they repay in the future is worth less in real terms than when they initially borrowed it. This makes borrowing cheaper in an inflationary environment.

Investors holding tangible assets such as real estate, commodities, or precious metals also tend to benefit because the value of these assets often rises with inflation.

Stocks in sectors that can pass rising costs to consumers, like energy, utilities, and consumer staples, may see their revenues and profits grow, which can translate into higher stock prices.

Additionally, governments that have significant debt may benefit from inflation if it reduces the real burden of repayment, assuming interest rates on existing debt are fixed. Businesses with pricing power and the ability to adjust prices rapidly may maintain profit margins and even grow revenue during inflationary periods.

However, it is important to note that while some benefit, inflation can hurt fixed-income holders, wage earners whose incomes lag behind price increases, and consumers, particularly in low-income groups, as their purchasing power declines.

Understanding these dynamics helps investors and policymakers make informed decisions in an inflationary environment.

What Happens if Inflation is Too High?

When inflation becomes excessively high, often referred to as hyperinflation, it can have severe negative effects on an economy, businesses, and individuals.

One of the most immediate consequences is the rapid erosion of purchasing power. Prices for goods and services can increase daily or even hourly, making money almost worthless in practical terms.

Consumers struggle to afford basic necessities, which can lead to decreased consumption of non-essential items and a decline in overall economic activity.

High inflation also creates uncertainty in financial planning and investment decisions. Businesses may be reluctant to invest in expansion or new projects because future costs and revenues become unpredictable.

Savings lose value quickly, discouraging people from keeping money in banks or traditional financial instruments. Fixed-income investments, such as bonds, become particularly unattractive because the fixed payments they provide are rapidly devalued by rising prices.

Governments often face challenges managing high inflation. They may attempt to control it through monetary tightening, such as increasing interest rates or reducing money supply, but these measures can slow economic growth and even trigger a recession if applied too aggressively.

Additionally, hyperinflation can destabilize currencies, forcing countries to adopt alternative measures like foreign currency usage or new monetary policies.

Social consequences are also significant. High inflation can increase inequality, as wealthier individuals with access to inflation-hedged assets maintain purchasing power, while low-income households see their standard of living deteriorate rapidly. It can also lead to public unrest, strikes, and political instability as people struggle with the cost of living.

Overall, extremely high inflation disrupts economic stability, erodes trust in financial institutions, and undermines long-term planning, highlighting the importance of maintaining moderate and controlled inflation levels.

What is a Good Inflation Rate?

A good inflation rate is typically one that is moderate, stable, and predictable, allowing an economy to grow without eroding the purchasing power of money excessively. Most central banks target an annual inflation rate of around 2% to 3%, considering this level optimal for balancing economic growth and price stability.

Moderate inflation encourages spending and investment because it provides an incentive to use money now rather than let it lose value over time.

It also allows businesses to adjust wages and prices gradually, maintaining healthy profit margins and economic momentum. Additionally, predictable inflation helps investors and policymakers make informed decisions about interest rates, taxation, and monetary policy.

Very low or negative inflation, known as deflation, can be problematic as well. Deflation can cause consumers to delay purchases in anticipation of lower future prices, slowing economic activity and potentially leading to a recession.

On the other hand, high inflation creates uncertainty, erodes purchasing power, and can destabilize financial markets.

Therefore, a good inflation rate is one that strikes a balance—low enough to protect the value of money but high enough to stimulate economic activity.

Maintaining this balance requires careful monetary policy, monitoring of economic indicators, and timely interventions to prevent inflation from accelerating beyond manageable levels.

Who Controls Inflation in Nigeria?

Inflation in Nigeria is primarily controlled by the Central Bank of Nigeria (CBN), which serves as the country’s monetary authority.

The CBN’s main tools for managing inflation are monetary policies that regulate the supply of money in the economy, interest rates, and credit availability.

When inflation rises sharply, the CBN can increase interest rates to make borrowing more expensive, thereby reducing spending and slowing the upward pressure on prices.

Conversely, during low inflation or deflation, the CBN may lower interest rates to stimulate borrowing, investment, and consumption, thereby supporting economic growth.

In addition to interest rate adjustments, the CBN monitors liquidity in the financial system and implements measures such as open market operations, reserve requirements for banks, and foreign exchange interventions to influence inflation.

Fiscal policies, although primarily managed by the federal government, also interact with monetary policy. Government spending, taxation, and subsidy programs can either exacerbate or mitigate inflationary pressures depending on how they affect aggregate demand.

The effectiveness of inflation control in Nigeria depends not only on these monetary tools but also on structural factors such as supply chain efficiency, production capacity, and external economic conditions, including oil prices and exchange rate fluctuations.

By carefully balancing these levers, the CBN seeks to maintain price stability, preserve the value of the naira, and support sustainable economic growth.

Who is Hurt by Inflation?

Inflation hurts various groups differently, but generally, it negatively affects those whose incomes or assets do not increase at the same pace as prices.

Low- and middle-income earners are often the most vulnerable because they spend a higher proportion of their income on basic necessities like food, transportation, and housing. As prices rise, their purchasing power declines, reducing their standard of living.

Fixed-income earners, such as retirees receiving pensions or individuals with long-term fixed salaries, are also adversely affected because their income remains constant while prices rise.

Savers are similarly impacted if their deposits earn interest rates lower than the inflation rate, leading to negative real returns and erosion of wealth.

Conversely, borrowers with fixed-rate loans may benefit slightly, as inflation reduces the real value of their debt.

Investors in assets that appreciate faster than inflation, such as real estate, commodities, or inflation-linked securities, may also be shielded or even gain from rising prices.

Overall, inflation disproportionately hurts those with limited flexibility to adjust their incomes or investment strategies, creating financial stress and potential inequality.

What is the CBN Definition of Inflation?

The Central Bank of Nigeria (CBN) defines inflation as a sustained increase in the general price level of goods and services in the economy over a period of time.

In simpler terms, it refers to the rate at which the purchasing power of money declines because prices rise. The CBN monitors inflation primarily through the Consumer Price Index (CPI), which tracks changes in the average cost of a basket of goods and services consumed by households.

According to the CBN, moderate and stable inflation is considered healthy for economic growth, as it encourages spending, investment, and production.

However, persistent high inflation is seen as detrimental because it erodes savings, distorts pricing mechanisms, and creates uncertainty in financial markets.

The CBN emphasizes the importance of maintaining price stability as a core objective to safeguard the value of the naira and promote sustainable economic development.

How Does Inflation Affect Wealth?

Inflation affects wealth by diminishing the real value of money and investments over time. When prices rise faster than the returns on assets, the purchasing power of accumulated wealth decreases, meaning that the same amount of money can buy fewer goods and services than before.

For individuals holding cash or low-interest deposits, inflation directly erodes savings, effectively reducing their wealth.

Investments are also affected differently depending on their nature. Fixed-income instruments such as bonds or savings accounts with interest rates below the inflation rate generate negative real returns, reducing the effective wealth of investors.

Equities and real assets like real estate may retain or increase value if they outpace inflation, serving as a hedge against price increases.

Wealth distribution can also be influenced by inflation. Those with access to inflation-protected or appreciating assets tend to maintain or grow their wealth, while those without such assets see a decline in real value.

Long-term financial planning requires accounting for inflation to ensure that wealth accumulation and investment strategies preserve purchasing power over time.

How to Control Inflation?

Controlling inflation requires coordinated monetary, fiscal, and structural policies. The primary tool is monetary policy, usually implemented by a central bank.

Increasing interest rates can reduce borrowing and spending, lowering demand-pull inflation. Controlling money supply through open market operations or reserve requirements helps regulate liquidity in the economy.

Fiscal measures can also play a role. Reducing government spending or adjusting taxation can help cool excessive demand. Subsidies, price controls, and import policies may be used to stabilize the prices of essential goods, although these are often short-term measures.

Supply-side measures are crucial for controlling cost-push inflation. Enhancing production capacity, improving infrastructure, reducing supply chain bottlenecks, and promoting competition can increase the supply of goods and services, mitigating upward price pressures.

A combination of these policies, implemented carefully, is necessary to achieve sustainable inflation control without stifling economic growth. Clear communication from authorities and maintaining market confidence are equally important for effective implementation.