How the big boys play
SEE ALSO: When the city comes to your doorstep2. Include the core components of a good investment plan Your plan should contain: a) Your financial goals and the time frame. For instance, you want to save X amount of money within X number of years. It will help you know the amount of time you need to be able to meet your goals and any income needs you will have from investing. With a clear plan,you will be able to know what returns your investments will be giving you on average, and what you will need to keep going. b) The types of investments that fit your goals. c) Your plan for diversification: Where will you start? What will be your next step? There are people who start by just accumulating, then after that they put some money for instance in real estate. Someone else may go into business first.
SEE ALSO: Move investment in hotels out of Nairobid) The risk you are comfortable taking to achieve your financial goals. 3. Start immediately to benefit from compound interest Avoid delays. When you start immediately, you take advantage of time and compounding interest. When you start early you can start with small amounts which you can start increasing as time goes by. You have to first create the saving habit. Once you learn to live without Sh1,000, you can learn to live without Sh2,000, then Sh3,000. Start where you are as there is no amount of money that is small. When you get money, save first then spend. Most people do the opposite by spending then saving what is left over. If you can deduct it from the source, the better. If you are a salaried person, you can deduct it before you receive your salary, through a check off system. If you are in business you can do a standing order. It gets to the account and is picked, so what remains is your money. Compound interest is basically the eighth wonder of the world. When you put in money and it earns interest of say, 10 percent, the interest that you earn is re-invested. The more you re-invest, the more you get. For instance, if you decide today to save Sh2,000 consistently for the next 20 years, if the interest is at 10 per cent, you will have saved sh480,000. If you compound it, you will get another Sh706,000 as interest. So if you are in a Sacco, don’t eat your dividends. Re-invest it and you will see your money grow fast. 4. Diversify your portfolio
SEE ALSO: Firm joins new home ownership plan trainDon’t put all your eggs in one basket. This will help you with risk management. It ensures that if something adverse happens in one sector, it will not affect you 100 per cent. If you had invested in stocks and the stocks went down, then you will be safe. You can mix it up by making some baskets high risk and others low risk investments depending on your risk appetite, meaning how much risk you are willing to take on. This also depends on your age, as there are risks that you cannot take when you are too old and there are risks that are best taken when you are young. 5. Simplify your investing Avoid holding too many accounts with too many institutions. It is time consuming and won’t let you get a clear picture of your total portfolio. If you have about five to six companies that you have invested your money in, it can be so diversified that it becomes difficult to keep track. Minimise it to three places where you can keep your money and then with time you can grow to other places. You can do two or three products in one institution and then diversify to another area. This doesn’t mean you should not diversify your portfolio. Diversifying your portfolio means don’t just do stock market, for instance. Do real estate, Sacco, pension plan and so forth. Simplifying your investment means not having too many accounts with too many institutions. For example, investing in five insurance companies offering almost the same thing. For instance, if you have children, you should not have education policies in every institution. Simplifying your investments will also put you in a better position to negotiate. For instance, you can go a to a company and tell them, “I have brought you sh50 million. Can you give me a good rate?” But if you have put the sh50 million in different institutions, your bargaining power gets lost. 6. Be realistic
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