7 Investment decisions to make now
Experts have predicted that Kenya’s economy is set to do better in 2019. Caleb Mugendi, an investment analyst at Cytonn Investments, speaks to JACQUELINE MAHUGU on what you can do to take advantage of this.
1. Make your plan now
Investing is a process and you need to plan what you want to achieve. Have a clear list of what you want to achieve this year and in the years to come, so that you can categorise it as short term, medium term and possibly long term goals you want to achieve. This will assist you in assessing how much risk you can take on. Once you have listed your goals you can now come up with a plan of how you can invest that and try to match the products that are available in the market to your goals.
Once you have your plan, and you have made short term, medium term and long term goals, then you can go into the market and see what products or investment classes are available that match your goals. There is a huge range of that, such as equities, fixed income securities, bonds, bills, real estate (property). Long term investments have higher returns but are a bit more risky. You can invest in the stock market via equities and you can also invest in real estate. Equities, for example, are quite volatile, especially in the short to medium term. If you want to invest in equities, which is recommended, it is also advised that you have another longer term view. Buy into a good company but first make sure you like the fundamentals of that company. Conduct your research, make sure the company is well-positioned and well-run and buy long term. Also, look into stocks that offer good dividends, as it’s also a good income stream even if prices are volatile.
3. Get your chunk of real estate and stock market
Properties are a great long term investment. You can buy land, you can buy into a REIT (a company that owns, operates or finances income-producing real estate) that is listed on the exchange. You can also build residential or commercial buildings. We still expect this year to have a lot of volatility for investors, because of what is also happening in the global economy. Therefore look for something that has value. Property prices keep rising. If you get an undervalued property, it will weather your investment more. The same goes to the stocks market. Try and get something that is currently undervalued. A lot of sectors like the financial services took a beating last year, so we expect earnings to improve this year. For example with properties, you can look at areas surrounding Nairobi, with undervalued parcels of land that are set for improvement infrastructure-wise. Those will benefit you in the long-term.
4. Have lower risk, short term investments too
For lower risk you can buy bills and bonds for a fixed income security. That is what available in the market in terms of actual investing. For short term, you can also consider putting your money in something liquid, one that still gives you a return, such as fixed deposits on the money market that give you a sustainable return on the short term.
Have a good mix of investments in different asset classes. This is so that if one of your investments does not do too well, it can be covered by a good performing investments in a different asset class. For example, last year, the equities market declined by about 15 per cent, so if an individual had also had invested in properties and money markets, that would have cushioned the negative returns from the equities market.
6. Compound your savings
There is the culture of savings and saving for retirement, which if you haven’t started, you should start now. The best way to save is using a medium that comes with compounding interest. If you save about ten per cent of your savings, put it in a yielding asset and keep doing that over time. After 10 months you’ll find that you have saved maybe 100 per cent of your initial salary. This 100 per cent keeps earning interest as you keep saving. What you started with, in the first year you’ll have had 120 per cent of your salary saved, but that 120 per cent keeps earning interest. So it not only increases because you were saving, but also because you are earning compound interest too. It compounds and becomes a large amount over time.
Also, save for emergency funds that can cover close to 6 months of living expenses, that can cover you in case you have a significant change in your situation.
7. Do not rush into new investment opportunities
A lot of people tend to rush into new hot things for fear of missing out on quick returns. Last year, it was the cryptocurrencies like bitcoin. Then there was a burst bubble and value went down by more than 75 per cent by end of 2018. Once you have an investing plan that suits your needs, try to stick to it. Don’t only look at the returns, look at the risk. Understand the risks properly, don’t just invest because of the promise of higher returns.
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Caleb MugendiCytonn InvestmentsKenya's economy2019