Why you need to diversify your wealth portfolio

When it comes to growing and keeping wealth, aligning investment strategies with clear financial goals is paramount. 

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As the Kenyan economy continues its steady growth, with the gross domestic product (GDP) expanding by 5.5 percent in 2023, it is crucial for individuals and families to have a well-rounded investment strategy to preserve and grow their assets.

One of the foundational principles of effective wealth management is diversification.

By allocating assets across different investment vehicles, such as money market funds, equities, fixed-income products, real estate, and alternative investments, investors can reduce risk and improve the chances of steady growth.

This approach helps to ensure that the portfolio is not overly exposed to the fluctuations of any single asset class, thereby providing a measure of protection against market volatility.

Closely tied to diversification is the concept of risk management. Prudent wealth managers will carefully assess the potential downside risks and implement strategies to protect against them. By proactively managing risk, investors can safeguard their wealth, ensuring continuous growth over the long term.

Another crucial element of successful wealth management is the consistent review and adjustment of financial plans. As an individual's circumstances and market conditions evolve, it is essential to revisit one's investment strategy and make necessary tweaks.

This ensures that the portfolio remains aligned with the owner's evolving needs and risk profile. Regular portfolio rebalancing and adjustments can help to keep the investment strategy on track and maximise the potential for long-term growth.

When it comes to growing and keeping wealth, aligning investment strategies with clear financial goals is paramount. Whether the objective is to fund a child's education, secure a comfortable retirement, or build a legacy, the wealth management approach should be tailored accordingly.

This might involve a mix of short-term, mid-term, and long-term investment vehicles, each serving a specific purpose.
Many Kenyans have short-term financial goals that they aim to achieve within 1 to 2 years. These could include saving for a vacation, a down payment for a car, or funding a child's school fees. For these goals, Kenyans can consider investing in money market funds.

For example, by saving a consistent amount each month in a money market fund, a Kenyan can accumulate a significant sum within a year. This could be used to book a vacation package with tour companies which offer a wide range of travel options within Kenya and the region. Money market funds provide safe and liquid investment option for short-term goals.

Mid-term financial goals, such as saving for a mortgage or construction downpayment or funding for business capital, often have a time horizon of between three to five years.

Fixed Income unit trust funds can be excellent savings vehicle for these goals. By investing Sh20,000 per month in a Fixed Income fund, Kenyans can accumulate between Sh541,526 to Sh1,230,516 in two to four years assuming the fund is yielding 14 per cent per annum. Fixed income funds provide the perfect balance between income and capital appreciation.

With such investment assets, Kenyans would be able to grow their savings and beat inflation as opposed to saving in a bank account earning zero to two percent interest. Moreover, unit trust funds are liquid meaning one can access their funds within 24 hours upon request.

As for long-term financial goals, such as saving for retirement or building generational wealth, Kenyans can consider a mix of life insurance plans and real estate investments. By allocating a portion of their monthly savings, say Sh5,000 to Sh10,000, to such a plan, Kenyans can build a substantial retirement nest egg over 10 to 20 years.

Alongside the above investment options, Kenyans can also consider investing in the Nairobi Securities Exchange (NSE) to build long-term wealth.

By investing in a diversified portfolio of stocks, Kenyans can potentially achieve higher returns, with the NSE offering an average annual return of 15 to 20 percent over the long term. Options also exist to diversify into foreign stocks in sectors showing good prospects.

However, it is key to note that the higher the return, the higher the risk the asset bears.

By utilising a mix of investment vehicles in their investment portfolio, such as money market funds, fixed income funds, equity investments and real estate, Kenyans can balance risk and reward, thus building a strong financial foundation. This diversified approach helps to cushion against any adverse downturns from riskier investments, ensuring that their invest

The writer is Britam Asset Managers CEO & Principal Officer

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