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Make your money work for you, they said

By Peter Muiruri | October 28th 2020

‘Make your money work for you’ is one of those clichés that will almost make your ears bleed from overuse. But, we can ascertain that those who have followed it have gone on to create unimaginable wealth. As you consider an investment option, here are the pros and cons to think about.


Stocks are stakes of ownership in a company. In Kenya, when people talk of having bought some ‘shares’ especially in a listed company, they are mostly referring to taking a slice of the company and receiving part of the company’s profits as a proportion to their invested amount.

Pros: Like any other product, if you buy when the price is low, there is a possibility of the share price going up and, depending on the number of shares bought, you can ‘flip’ them for a profit. You can then reinvest either in similar stocks either in the same company or elsewhere.

Cons: Stocks are unpredictable. A company doing well today may face unforeseen turbulence that shakes the share price sending it on a downward spiral. This is what has happened to many firms owing to the ongoing Covid-19 pandemic. On the other hand, a company may not always pay you a divided even after making a profit. It may want to reinvest the cash by perhaps expanding the business through introduction of a new product and alter the business strategy. To make good money, a person needs to have a long-term view of the stock market and hope for a rebound.


To the uninitiated, stocks and bonds might be confusing. While a stock means you own a slice of a company, a bond, in lay man’s terms is more of a debt that an entity enters with an investor. The entity promises to pay you back your money together with interest accrued during a specified period of time. In Kenya, the government normally issues bonds to finance big projects such as infrastructure or other capital-intensive projects.

NB: If you have been keen on the business news, you will know that government bonds are currently a safer bet compared to corporate bonds

Pros: Bonds operate on fixed terms thus guaranteeing you returns over a certain period of time. The interest paid on your ‘debt’ is also fixed and not affected by interest rate fluctuations. Thus, as an investor, you can plan for the cash in advance. Government bonds are also preferred as it is assumed that a government cannot be broke and thus fail to honour its obligations. They provide a lower risks for an investor.

Cons: Unlike stocks whose value can hit the roof overnight and turn investors into overnight millionaires, bonds – corporate or government – offer lower returns.

Sacco savings

This is a familiar ground with most of the working class. Saccos – Savings and Credit Cooperative Society – allow members to save an agreed amount every month. Initially, Saccos were made up of members working in the same firm. However, some Saccos allow outsiders to join. In most organisations, employers are allowed to deduct an agreed amount from an employee’s salary and forward to the Sacco. A Sacco can increase an employee’s investment portfolio by investing the pooled funds into a profitable venture. In Kenya, Saccos have been known to buy large chunks of land that is then sub-divided to members who can either build their own homes, use the land as collateral against borrowing or, wait for price appreciation before disposing the land.

Pros: Saccos encourage a culture of saving with a specific investment goal. Flexible terms allow for emergency loans at lower lending rates compared to banks. In some Saccos, one can borrow up to three times the amount deposited. A Sacco dividend can be used to service a loan taken from a commercial bank thus relieving an employee of the pressure associated with such repayments.

Cons: Some Sacco members have lost savings due to mismanagement. In addition, many Saccos have limited liquidity that restricts the amount one can borrow. “Banks have billions at their disposal, which makes it easy for customers to borrow money in millions. Saccos, on the other hand, have lower resources and it is not easy to borrow such an amount of money,” writes Enid Kathambi, a finance and accounting professional.


The community-based merry-go-round was originally formed to assist women who could not access finances from the formal sector. Men, too, have joined the bandwagon to form Chamas. Like Saccos, Chama members have some things in common – usually social ties rather than employment. They may be family members, attend the same church, school or live in the same neighbourhood.

Today, Chamas have morphed into powerful groups that hold hundreds of millions of shillings. “It is estimated that there are over 300,000 Chamas in the country controlling about Sh300 billion worth of assets. This indicates the rapid progression that has made Chamas very powerful investment vehicles,” said the late Safaricom chief executive Bob Collymore in a foreword to a Chama handbook. Basically, members contribute a set amount that is then given to one individual who can then invest in other programmes such as the ones mentioned earlier. The process continues until all members get a similar amount.

Pros: Some Chamas are transitioning from welfare groups to investment vehicles. Members contribute an equal amount of cash thus putting all under the same category.

Cons: There are few binding structures that can allow for speedy dispute resolution mechanism. Some members may default or delay their contribution thus disadvantaging a beneficiary. The amount contributed may restrict a person from taking on large investment causes. If uncontrolled, Chamas can easily become ‘social clubs’ rather than investment vehicles with clearly defined goals.

Fixed deposits

If you are that overly cautious employee but still need to grow part of your salary, then you may consider opening a fixed deposit account. This account, especially with a bank, promises a fixed rate of interest on your deposit within a certain period of time. You agree not to withdraw the cash until the agree period is over. Contravening this requirement results in a penalty – a fine that will reduce your savings.

Pros: There are guaranteed returns after the FD period. They are preferred by those with limited amount of cash for investment. Some banks allow an investor to use the fixed deposit amount as security against borrowing, saving one the penalty of withdrawing the fixed amount.

Cons: The fact that FDs are less risky means they also offer low returns. In case of financial trouble or an emergency, it is not easy to withdraw the amount, and you risk a penalty for doing so.

Real estate

There is a vast array of investment opportunities within real estate. In Kenya, Reits (real estate investment trusts) have gained traction. They function in a similar manner to holding stocks in a company – only that this time, the company invests in real estate. For their love of a ‘plot,’ Kenyans have made hay while the sun shone on the real estate sector.

Pros: There are some tax benefits from the Treasury that benefit real estate investors. In Kenya, land has been known to appreciate within a short time. Rentals, however small, provide a steady cash flow. Buying some rental property on a mortgage means the tenants are paying the loan on your behalf.

Cons: In Kenya, chances of fraud are high in real estate. It is also capital-intensive and requires time to learn and manage, something that may be in short supply for an employee. Real estate is a long term asset that cannot be quickly liquidated in case of financial stress.

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