“The Cedi Is Losing Value Too Quickly, Should I Just Buy US Dollars And Be Free?”: Expert Advises
- A Ghanaian woman is worried that saving and investing in cedis is not enough to preserve the value of her money
- She is considering buying US dollars instead of just saving her money in Ghanaian currency because of the consistent depreciation
- Patrick Abankwa, an investment analyst, gave some insight on how to navigate this challenge
I have been doing the math, and the GH¢20,000 I had saved up for a rainy day, which was worth about over $2,000 around this time last year, is now worth some $1,500, even with the interest. The way things are going, it will soon be worth about $1,000. Recently, the depreciation of the cedi against the US dollars crossed 7 percent.
Now I am wondering if I have been foolish by not buying dollars like some people suggested. I had faith in investments like mutual funds but it seems like it is not working enough for me. Should I buy US dollars just to be safe?
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A finance expert shares some advice
Patrick Abankwa is a Chartered Banker and Chartered Global Investment Analyst
Every investment that one may want to consider has some risk compensated by the associated returns.
Buying the US dollar can be a valuable tool to protect your investment against inflation, but it's not always the best choice.
Comparing it with regular savings like Mutual funds has positive and negative sides:
Benefits of holding US dollars
Hedge against inflation: The US dollar is generally considered a stable currency. If the Ghanaian cedi inflates, your dollars will hold their value comparatively.
Global acceptance: US dollars are accepted worldwide, offering more flexibility in spending or future transactions.
Downsides of holding US dollars
Limited growth potential: Holding US dollars primarily offers stability, not high growth compared to some investments. When the cedi is stable, you lose the time value of money because you earn nothing on the dollar being held.
Exchange rate fluctuations: The US dollar-cedi rate fluctuates. You might buy high and sell low, reducing your purchasing power.
Comparison to mutual funds
Mutual funds offer potentially higher returns through diversification and professional management but carry some risk of market fluctuations.
They can be a good option for long-term wealth building in cedis.
Final recommendation
Diversification is key: Consider a mix of dollar holdings for stability and cedi-based investments for growth, like mutual funds, depending on your goals and risk tolerance.
Track your goals: Are you saving for a short-term expense or long-term retirement? Short-term needs might benefit more from dollars, while long-term goals can leverage mutual funds. It is essential to assess your circumstances and risk appetite.
Disclaimer: The advice given in this article is general and is not intended to influence readers' decisions. They should seek their own professional advice that takes into consideration their circumstances before making any decisions.
Email ask.an.expert@yen.com.gh with any issue you may need advice on.
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Source: YEN.com.gh
