To achieve your investment goals faster, you need to pump your savings into a portfolio that yields above market returns.
This implies selecting top growth financial assets, optimising risk exposure and having the right discipline to keep reinvesting into that portfolio.
This works best if you are a young person who can invest savings for several years or decades and benefit from stock growth and reinvested dividends.
However, before setting yourself on this road, you need to get some things right. First, you should be debt-free. It helps by reducing your interest payments thereby raising your disposable income. Once you are debt-free, it is time to learn about global financial markets and develop a personal investment plan.
This involves setting a financial goal such as building your portfolio to Sh10 million in five years. It may be to own a home or save for retirement. You should give that goal a numerical figure and set a period to achieve it. Select the markets you would like to invest in and calculate how much you need to put in per month or week depending on the frequency of your income.
There are three basic ways of growing your investment portfolio. The first one is basically the amount of money you save and invest directly into your portfolio. For instance, if you decide to invest Sh10,000 per month, in a year, you will have grown that investment to Sh120,000.
The second way of growing your investment is by allocating the money to valuable assets such as purchasing growth shares of global companies with a huge moat. A company with a huge moat is one with a huge ability to maintain competitive advantages over its rivals to protect its long-term profits and market share.
When you accumulate such assets in your portfolio, earnings per share will increase the net value of your bottom line as well as the dividend earnings from those stocks when the businesses perform well.
At the onset, a five per cent annual dividend of Sh5,000 from a Sh100,000 investment may not sound like much but 10 years down the line when you build that portfolio to Sh1 million, the same five percent annual dividend will be equivalent to Sh50,000. This requires discipline and a carefully drafted plan to diligently build that investment portfolio.
The third and most magical way to accelerate your portfolio growth is through compounding. This involves reinvesting your trading profits and dividends to buy even more financial assets.
For instance, if in your initial year you invest Sh120,000 and earn Sh6,000, you reinvest the profits and keep doing that every other year. This will help you achieve your financial goal faster.
If you are new to the world of investing, it might sound like a difficult endeavour and you ignore the idea of investing in the global markets. However, it is imperative for you to know that access to information on global financial markets has been democratised and can be easily accessed from any internet-connected device free of charge.
It is also important to know that there are millions of citizens who are currently investing their monies in global markets through their locally regulated brokers. Surround yourself with persons who are conscious about investing and those that are currently walking the same path.
This way, you will avoid common mistakes by beginner investors such as selling your stocks to honour short-term liabilities. Develop the right investing mindset by reading investing books, watching the right vlogs, and attending online investing webinars.
Choose the right portfolio mix and make sure it is well diversified to mitigate against risks. This may involve putting some money in real estate stocks, exchange-traded funds (ETFs), commodities, technology stocks, futures contracts, among many other asset classes, sectors, and across varied geographical locations. This will ensure that if a certain sector is negatively affected by a news event, gains from the other sectors will compensate for the losses in one.
In addition, it is wise to consult an investment professional so that you can shorten your learning curve and increase your chances of reaching your investment goal at the desired time. This may include interacting with professional traders with vast experience trading in the global markets for advice, mentorship and insights.
If you don’t invest your savings, inflation will eat away their purchasing power and you will realise that the funds are buying less stuff than they were at the onset. The richest persons on the planet allocate the largest part of their money in stocks. Learn from them.
Kamau, is a Research and Market Analyst at Scope Markets Kenya. email : [email protected]