Michelle Obama once said, “Success is only meaningful and enjoyable if it feels like your own.” Investing wisely today can lead to a financially secure and successful future. It’s the ultimate act of self-care for yourself and your wallet. Investing involves deferring consumption from the present to a time in the future. It is normally preceded or accompanied by the act of saving, which, when coupled together, empower you to rosier time ahead.
But let’s face it, the world of finances can be overwhelming and intimidating. That’s why we’re here to guide you through the maze of investment options and help you confidently make choices that align with your goals. Whether you’re a beginner or a seasoned investor, we’ve got you covered. So sit back, relax, and get ready to take charge of your financial future. We’re going to provide six ways to start investing in Kenya with as little as KSH500.
Ways of Investing
‘There are many ways to skin a cat’, a phrase commonly used around. In the same breath, investing comes in many forms and this requires a keen mind to ensure that you don’t break bank for no reason, as investing can be an expensive feat. A keen emphasis on the type of investment guarantees a positive return on the endeavor, but then again isn’t everything in life a gamble? It’s commonly stated in business that the higher the risk, the higher the return, towards the goal of life as Maya Angelou put it “the mission is not to merely survive, but to thrive; and to do so with some passion, some compassion, some humor and some style”.
The Stock Market
Stocks – also known as shares or equities is the most common type of investment. You can invest in individual company stocks, or you can invest in exchange-traded funds (ETFs) that track the performance of the market. Many brokerage firms in Kenya offer online trading platforms that allow you to invest in the stock market with as little as KSH5000.
Investing in the stock market is a great way to start building your wealth. However, when investing in the stock market, it’s essential to do your research and understand the potential risks involved. It’s also crucial to diversify your portfolio by investing in different companies and sectors to spread your risk.
When you acquire stock, you are buying an ownership stake in a publicly listed company. This allows return in the form of annual dividends and the growth of the share value as the company continues to trade and grow. These shares are tradeable in the case one opts to cash out. Examples of some public listed companies in Kenya include EABL, KCB Group, Safaricom, Standard Group among others.
Exchange Traded Funds (ETFs) which are also known as underlying securities or assets, EFTs are traded on exchange just like an ordinary share. The price of a particular EFT is dependent on demand and supply of the option. These vary and can either be a domestic or an offshore product. Unlike mutual funds that are purchased through a fund company, EFTs are traded on the stock market, though being more diversified than individual stocks, a fact that allows minimised risk on chances of return, thus ensuring a fertile ground for budding investors. This is further supported by the option to choose an EFT that tracks a broad index. Examples of popular ETFs on the market today are the S&P 500 (SPY) and the Dow Jones Industrial Average (DIA).
Government Bonds
When purchasing a bond, you are essentially lending money to an entity, can be a business or the government. Government treasury bonds, commonly traded in Kenya, are issued for a specific period of time – termed as the bond’s maturity date. With most bonds, investors receive interest payments every six months throughout the set period of time and at the end you receive the face value of the invested amount. If you’d like to purchase a Treasury bond, you must invest a minimum of Kshs. 50,000. This initial amount may be out of reach for a lot of first time investors. However, this is a situation where applying a sustainable saving strategy can enable you to put aside enough funds to meet the minimum investment amount requirements and make your first investment in bonds.
Unit Trusts & Mutual Funds
A unit trust is a type of investment fund that pools money from many investors to invest in a variety of assets, such as stocks, bonds, and real estate. Investing in a unit trust allows you to diversify your portfolio and reduce your risk. You can start investing in a unit trust with as little as KSH1000 through many investment firms in Kenya. You can invest in different types of unit trust funds. You need to understand each of them and how they complement your financial goals to know where to put your money.
Mutual Funds is a type of investment where different investors with a similar financial goal, pool their funds and have a team of professionals invest it on their behalf. By coming together on a mutual agreement, the investors enjoy 2 key benefits in that, they can afford fund managers who can manage the investment on their behalf as well as they can spread out to multiple investment options that would ordinarily not be available to them individually. This also offers beginners in investment a good opportunity to learn from the pool of investors in the team. Mutual funds give returns in the form of interest payment which is distributed among the investors. Some funds distribute earnings daily, weekly or monthly. This information is made privy to the find participants before making an agreement.
When investing in a unit trusts or mutual funds, it’s essential to choose a reputable fund manager and do your research to understand the fund’s investment strategy and potential risks. As recently ranked, find the leading money market funds in Kenya.
When investing in these types of funds, it’s essential to understand the fund’s investment strategy and potential risks. Each fund has varying levels of risks and returns. Therefore, it’s also crucial to consider the fund’s fees and expenses, which can affect your returns. Funds to consider include the following:
- Money market funds: Have minimal risks but with low returns. Such investments can include short-term money bonds.
- Equity: They have higher long-term returns but with higher risks. They mainly invest in the Nairobi Securities Exchange.
- Balanced funds: These are a mix of low-risk and high risk-funds.
- Fixed Income funds: These are investments in interest-bearing securities that include treasury bills, treasury bonds, and approved securities.
- Sector Specific funds: These are funds invested in a specific industry.
Fixed Deposits
A fixed deposit is a type of savings account that pays a fixed rate of interest for a fixed period of time. Investing in a fixed deposit is a low-risk way to earn a return on your investment. This involves loaning a certain amount of money to the bank for a predetermined period of time. In return, you earn interest on the issued amount and when the period is over, your principal is given back. Key to note is that the longer the loan period and the larger the initial investment amount, the higher the interest rate is likely to be.
When investing in a fixed deposit, it’s essential to understand the terms and conditions of the account, such as the interest rate, minimum deposit, and withdrawal restrictions. It’s also crucial to compare the rates offered by different banks to find the best deal. Simply put, this investment works best if left untouched. In the case of early withdrawals, penalties are set in place which will negatively impact your overall returns. Most banks in Kenya offer fixed deposit accounts that allow you to start investing with as little as KSH5000.
Retirement Plans
Retirement plans is all about planning for your golden years. These types of investments involve planning for retirement income goals and identifying what is needed to achieve them. The retirement age in Kenya currently stands at 60 years, and 65 years for persons with disability. The most common form of retirement plan is the workplace retirement plan, sponsored by your employer. Saving in a retirement benefit scheme is one way to keep your savings safe from the tax man. If you are not in employment, individual pension plans also exist to ensure that you can contribute for your retirement. These schemes work through daily, monthly or one-off contributions, on special occasions. The returns are only claimed on maturity, after retirement or in the case of death, where a lump sum is paid to the contributor or next of kin as guided.
Saccos
Investing in a Savings And Credit Co-Operative (SACCO) enables you to lend money to individuals or businesses in exchange for a return on your investment. This is a great way to diversify your portfolio and earn a higher return than you would with a traditional savings account. Many SACCO lending platforms in Kenya allow you to start investing with as little as KSH5000.
When investing in a peer-to-peer lending platform, it’s essential to choose a reputable platform and understand the potential risks involved. It’s also crucial to diversify your loans by investing in different borrowers to spread your risk.
Potential pitfalls associated with investing
Let’s land this plane, some assumptions do exist about investments that over time have shifted and the world has struck a balance of opportunities. We are in a time where investing isn’t just a man’s game as studies now support that women earn 12% higher returns than men in individual investments and women take less investment risks than men.
Marguerita Cheng, CEO of Blue Ocean Global Wealth, advises that investing is as much a mind game as it is a money game. Some of her key tips are:
- Understand compound interest and the time value of money.
- Have discipline and commit to your investment strategy.
- It makes sense to seek help from a financial professional.
- Always work on your saving culture
It’s lovely to assume a simplicity in the process, but it does not come easy. The market can and will surprise you, thus a tough skin is paramount for this. Keep your emotions in check and ensure to move with logic and focus on the returns than managing the risk as investing is a gamble. Remember the higher the risk… you can complete the rest. Remember to pay your taxes and in the deep of it all, you can always seek professional advice.
Do some research and trust your instincts. When it comes to investing, it’s clear that women are doing something right
Be cautious yet optimistic
These are just but a few investment options, more exist such as options, annuities, derivatives, commodities and many more. As much as the above seem all planned out, there are more unorthodox methods of investing such as owning real estate that accrues in value, gold that keeps and accrues in value, owning your own business that allows the opportunity to save and invest further, peer-to-peer lending and equity crowdfunding.
If you’re interested in starting to invest, it’s important to consider your financial goals and risk tolerance. Each of the options listed above comes with different levels of risk and potential reward. Investing in the stock market can provide higher potential returns, but can also be more volatile and risky. On the other hand, investing in a money market fund or a fixed deposit is lower-risk but typically provides lower returns.
Before making any investment decisions, it’s a good idea to do your research and consider seeking the advice of a financial advisor. They can help you determine the best investment strategy for your individual needs and goals. Remember, investing is a long-term game, and it’s essential to have patience and a diversified portfolio. With as little as KSH1000, you can start building your wealth and working towards your financial goals.
