If your investment does not deliver returns above inflation, you’re effectively losing money.

In today’s environment, that bar is set high.

With Nigeria’s benchmark interest rate at 27.5% and inflation hovering around 22.22%, investors face a complex landscape—where risk-free assets now offer relatively high yields and even positive real returns, while riskier assets continue to deliver soaring, but more volatile, returns

While money market and government-backed fixed-income instruments remain strongholds for conservative investors, dollar funds offer currency hedge advantages, and equities and cryptocurrencies carry higher return potential—with higher volatility. Commodities, too, offer a buffer in inflationary cycles.

So, where should you be putting your money in this elevated yield environment?

According to analysts and portfolio managers, the answer lies in building a diversified portfolio tailored to individual circumstances.

One that doesn’t just chase returns but seeks to maximize the Sharpe ratio, which measures how much return you’re earning for each unit of risk you take.

In other words, it’s not just about how much you make but how smartly you earn it. By blending different asset classes—like equities, fixed income, foreign currency funds, and commodities investors can manage volatility, align with their risk appetite, and improve long-term outcomes.

Let’s explore how different asset classes are performing, their prospects, risks, and how they might fit into your portfolio.

In 2024, the Nigerian Exchange (NGX) showed impressive resilience, with the All-Share Index (ASI) posting a 37.65% year-to-date gain, outperforming inflation.

About 35 stocks recorded triple-digit YtD gains, and 70 stocks delivered returns exceeding the year’s inflation figures.

Coming into 2025—a year shaped by economic recalibration—the Nigerian stock market has pulled off an unlikely feat: creating the largest pool of billion-dollar stocks.

As of July 31, 2025, at least 17 companies listed on the NGX now boast market capitalizations exceeding $1 billion, collectively worth over $45.15 billion (N69.978 trillion), up by $11.7 billion (N18.2 trillion) in just seven months.

Many of these stocks began the year deeply undervalued. Currency devaluation made them even more attractive to dollar-based investors, rendering them “cheap” in real terms. Improved corporate earnings further reinforced the market’s appeal.

Arnold A. Dublin-Green, CIO of Cordros Asset Management, noted during the Naijaonpoint Drinks and Mics program: “This isn’t just a rally. It’s a massive opportunity—one of the most compelling contrarian bets in global markets today.”

Similarly, Samson Esemuede, of Zrosk Capital, said: “What we’re seeing in the equities market isn’t just a rally — it’s a recalibration.” He added:

This surge is occurring even without significant participation from institutional investors. “Just reallocate 5% of the N3.1 trillion in money market funds into equities—and see the difference,” he quipped.

Institutional participation remains thin. Pension funds allocate just 11.4% of their N24.10 trillion in assets to domestic equities, while mutual funds commit under 2% to equity and balanced funds.

Recommendation: Equities should make up 20% to 30% of a growth-oriented portfolio, especially for investors with long-term horizons and tolerance for volatility.

For conservative investors, Nigerian Treasury Bills (T-Bills) and Federal Government Bonds remain go-to assets for capital preservation and predictable income.

While they may not match equities in capital growth, they offer stability and near-zero credit risk.

But for retail investors, accessing these instruments at attractive yields is becoming increasingly difficult—banks and large institutions often crowd them out at auctions.

According to CBN’s June 2025 auction data:

With the MPR held at 27.5%, analysts expect yields to stay elevated barring a major drop in inflation. Though real returns remain negative, many believe it’s better to stay safe.

Bismarck Rewane, CEO of Financial Derivatives Company, summed it up:

“If you’re not chasing alpha, the best play is to earn 18%–24% with minimal risk and go to sleep.”

Recommendation: Risk-averse investors can allocate 30%–40% of their portfolio to T-Bills and Bonds for income and stability.

To navigate access constraints, consider FGN Savings Bonds, money market funds, or fixed-income mutual funds, which offer easier entry points and better execution for retail investors.

Mutual funds offer a managed route into various markets—money market, equity, fixed-income, real estate, or dollar-based funds.

Money market mutual funds dominate, with a NAV of N2.77 trillion as of April 2025. These funds preserve capital while delivering attractive yields.

Dollar mutual funds offer FX protection:

According to Naijaonpoint Research, 34 dollar-denominated funds returned 6.73% YtD (June 2025), down from 7.63% in 2024.

Recommendation: Allocate 15% to 25% to mutual funds depending on your knowledge, liquidity needs, and risk appetite. Use money market funds for Naira income and dollar funds for FX protection.

Exchange-Traded Funds (ETFs) provide exposure to baskets of securities, tracking sectors or indexes with reduced unsystematic risk.

Twelve ETFs are listed on NGX, including:

Performance varies:

However, Nigerian ETFs often lack standardized yield reporting.

Recommendation: Allocate 10% to 15% to ETFs, especially for moderate-risk investors seeking low-fee, diversified exposure.

FX and commodities like gold offer protection rather than income.

Recommendation: Use commodities and FX as 5% to 10% “satellite” portfolio holdings for risk mitigation.