Small investments you can start this year

Small investments you can start this year (Photo: iStock)

When we talk about investing, many people assume that they need a large amount of money to get started. However, financial literacy expert Patrick Wameyo disagrees, saying that you can invest at any point in your life.

He says small investments mean acquiring assets within your means in order to achieve the objectives set out in your financial plan. He gives several reasons why it is better to start small financially than to wait until you have enough money to invest.

The first is the time value of money. Money invested today starts earning interest tomorrow, and the longer it is allowed to grow, the greater the return in the long term. He encourages young people to use this to their advantage and start investing now, rather than focusing solely on dividends.

The second reason is that investing involves learning through action, meaning that if you own an asset early on, you can test its viability in an economic environment and learn from the experience. He says that to be a good investor, you should learn smartly by starting with very low investments.

“At some point you will lose money as you invest, and it does not mean that something is taken away from you; it has to do with the economic environment,” says Patrick.

With exposure during this learning curve, he adds that you do not lose everything and are better placed to adjust quickly.

Another reason is that there is no single right asset for everyone; it depends on your portfolio design. For instance, you can buy assets weekly or monthly, depending on how you are paid.

While he insists that there are no best investment options other than those tailored to your needs and capacity, accessible financial assets you can start with today include shares, money market funds, bonds, and tree planting for sale, particularly for young people. Government instruments such as bonds and money market funds are ideal for older people.

He advises young people who are just starting to invest early and long-term, allocating 70 per cent to high-risk investments and 30 per cent to low-risk options. He says that you do not need to invest only monthly, but whenever you have money, and that you should reinvest your returns.

“When buying an asset, say a share, young people should reinvest the dividends by buying more shares,” he says.

He notes that many investment options are disregarded due to a lack of knowledge. If you have never invested in shares, you may assume they will make you lose money. People also wait for the right time; however, investment grows with time. Another common mistake is wanting to multiply money very quickly, which often lures people into schemes.

“Small investments do not mean you are safe from get-rich-quick schemes. If anybody promises you more than a 20 per cent return on investment, you need to consult a finance expert,” he says.

Before diversifying investments, Patrick advises accumulating information first, including understanding the risks involved. When you know what you are doing, diversification becomes easier. Still, this does not mean that buying across different sectors guarantees safety, as every investment responds to its own economic stimuli.

Inflation affects all investments by lowering the value of money, meaning that there are no investments that perform well during economic uncertainty. The value of an asset, he says, reflects the business it is in.

An investor can be guided on how to manage their assets by an experienced investor, who can help them review and make adjustments.

Technology has made investing easier, such as the transition from basic accounts to stockbroking accounts. When using investment apps, he says, they are both costly and safe.

“Having discipline makes it easy to invest. A small investment will become significant with time. The longer you invest, the more your money will grow and work for you,” he advises.