Making, growing, and protecting wealth has never been easy.
Barack Obatsa, whose career involves monitoring and advising the region’s rich, knows this all too well.
As the chief executive of Britam Asset Managers (BAM), he oversees Sh200 billion in assets under management (AUM).
The wealth unit is among Kenya’s top five fund managers and handles both institutional and retail investors.
Retail investors include high net-worth individuals (HNWIs) and institutional ones include pension funds and endowments, among others.
In an interview with Enterprise, he shares wealth-building tips and strategies that sets one on the path to riches.
This even includes simple ones like budgeting, networking and diversification, among others.
And in as much as you may have all this financial knowledge, it’s important to cultivate certain habits for long-term wealth building.
It’s never too early to start. The best time is once you start earning money.
Don’t spend more than you earn. That is what will save you the money.
Take calculated risks. The good thing is that when you are young you can take more risks.
The power of compounding
When you start investing early, in financial markets, the principle of compounding will ensure that by the time you reach a certain age, let’s say retirement, you will have built much more than the capital you put in.
Compounding works magic, as much as we don’t look at it very closely and don’t take it seriously.
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Be it compounding in capital returns or interest.
Take the example of our fathers and grandfathers who started investing in East African Breweries (EABL) way back, and you can see where EABL has reached now and all the dividends they’ve gotten.
Their shares have grown over 100 times.
Compounding happens both in interest-bearing instruments and also listed stocks.
It’s always good to start with liquid investments.
Start with a money market fund, but quickly transition into stocks.
The level of risky investments that you invest is to take your age then minus by a 100 or so, then it will give you how much more risk you take. For example, If you’ve just finished college or are aged about 25 years, you should have almost 80 per cent of your investment in stocks and other risky investments.
Yes, they will go wherever they go. But you have a lot of time you’re still earning. And by the time you get to 60 years old, you’d have reduced that to 10 per cent of the assets.
Government securities are some of the safest and best investment options with returns of up to over 15 per cent annually.
There are not many companies now are making returns of more than 20 per cent return on equity.
This is a risk-free instrument with guaranteed returns.
At BAM, we have offshore fund managers we partner with.
We’ll give you funds that we’ve carefully selected after doing due diligence.
Financial markets also give you some element of liquidity.
We’ve seen the stress that has happened in assets such as land when people struggle to dispose.
Nowadays, there are plenty of resources available online on financial education.
But of course, you need to get the right advice from credible sources on financial planning.
You can get a financial advisor from a credible institution such as Britam to support you in your financial journey.
Beginner mistakes to avoid
One of the things that people do is get caught up in Ponzi-like investments or get-rich-quick schemes.
As Warren Buffett says, understand your investments and know your investment returns.
Just don’t invest because your friend told you that they made up to 40 per cent returns or doubled their money. Ask questions and learn what you’re investing in.
When you are young, sometimes you don’t set goals correctly. And if you don’t set your goals, then the likelihood of achieving anything isn’t much.
Once you have a focus, then the mind will guide you there.
Goal setting and having financial targets are critical for investment success.
Learn from the wealthy
One of the things I’ve noticed is that the world’s affluent are extremely disciplined.
They also have an entrepreneurial mindset but a very selective one. In the sense that they will take some risks, but calculated ones.
Industries that are doing well include financial services, technology, commodities, and the food business.
Generational wealth is very tricky. Few families, manage to do it. In the world, this has been successful in Italy where you find very old businesses.
A common trait among the successful ones is that they introduce their children to those businesses very early.
We get it wrong … by the time you’re old and frail, your son or daughter doesn’t understand exactly what goes on in the business and after a while they just want to sell it and do something else with the money.
It’s also key to teach your kids how to grow and build wealth.
Moderate debt is okay and most companies have grown with that. So long as you can be able to repay your debt and generate enough cash flows in the future, debt is okay.
But at the same time, let debt not be the only capital source that you have in your business. You you also need to manage your risk things can go bad high interest rates, covid and financial ruin comes.
Build wealth and give
Giving back to society is a key wealth philosophy. One can do it by setting up a structured foundation or even identifying a project in your village that needs funding or giving scholarships.