Without information, investing can be risky

By Emmanuel Mwendwa

Achieving your investment goals in the financial markets requires close monitoring of performance and trends.

Without the information, investors could be taking risks because these markets — stock and money markets —are dynamic and fortunes keep changing.

Well-informed investors can avoid risks that can wipe their wealth overnight.

Wealth creation is not just about investing money, but gathering market information and projecting on the anticipated returns.

With inflation soaring, low to middle income earners are keen on investing to boost their earnings, but their meagre resources are at risk if they are ill-informed about market trends.

They should be wary that any investment comes with risks. They should also know that the higher the risks, the higher the returns are likely to be.

Asset management firms and financial institutions have responded to the demand for investment opportunities with an array of products.

Some of the products include fixed deposit accounts, unit trusts and insurance.

Most of these products can be tailor-made to suit the objective of the investor. However, investors must demand for advice, though some investment consultants offer the service.

"The client benefits from free advice on how reap good returns from asset managers," says Mr Robinson Muthama, a personal finance adviser.

He says advisers take into consideration client needs, risk profile, reasons for investing and expectations.

But prior to making any decisions, investors are cautioned to ensure they understand fundamental concepts, especially risks.

Every form of investment, says Muthama, carries a degree of risk.

"The risks of short-term bank deposits is negligible. But some forms of investment, such as stocks, have higher risks because their value fluctuates over time," he says.

First time investors are advised to take into consideration the benefit of time — a key factor, which determines a portfolio’s potential to gain in value.

Personal finance consultants always seek to establish why a client is investing and how long they can wait for the returns.

They advise investors who want high returns within a short time to avoid stocks.

Instead, short-term investment options such as a one-year term deposit with a bank may be more suitable.

"Your objectives will determine the kind of investment, time frame, the amount of money required for investing and rate of return," says Ms Joyce Ambale, a fund manager.

To reap maximum benefits, assets managers advise clients to have clear objectives for investing.

"It is important to identify a potential investor’s tolerance of risk.

An investor should be taken through a questionnaire and their responses are then used to generate possible options," she says.

Further, investors are advised to adhere to the strategy that they agree with their consultants.

"To reap maximum gains, an effective investment strategy pays if it is evaluated regular to ensure it is on course," she says.

Investors are also advised not to put their entire investment in one asset class.