Thika superhighway and other major roads in Kenya have lots of bars because young people are known for partying, buying expensive smartphones and secondhand cars.
The same youths have little or no investment. Investment is an art that every individual must learn as he starts his work life.
When you are fresh out of college and into your first job, you have less responsibilities and surplus money to invest. Instead of saving what is left after spending, one should form the habit of spending what’s left after saving. Money saved is money earned.
First invest in yourself. There is no better investment than education which will fetch you a better job and a rewarding career.
Read as much as you can, even if it is not related to the your work. An investment in knowledge pays dividend. There are many asset classes that one can invest in. Choose an investment vehicle that creates wealth over the long term.
Fixed income returns are almost equivalent to the inflation rate hence not a source for creating wealth over the long term.
Real estate requires large sums of money, hence not advisable for a fresh college graduate. Moreover, real estate comes with other challenges like looking for tenants and maintaining the property.
Being an illiquid market, it is difficult to dispose of the investment if one needs money urgently. In order to reduce the adverse effects of equity investments one should practice these principles:
Have a reserve cash of three to four months in the bank. This will take care of any emergency like medical, travel, temporary loss of job or a domestic mishap.
Equity investments are to be committed for long term hence one should invest only surplus money.
Being volatile in nature, understanding equity markets is difficult. Seek an expert’s advice before initiating equity investments.
DO IT YOURSELF
If you plan to invest on your own, study the company whose shares you plan to buy. Understand its business model, strength, weaknesses, whether the company has pricing power, etc.
Study the industry in which the company operates as well as its competitors and management.
One can not time markets. So as to maximise your returns, invest regularly — say once a month — instead of investing a lump sum at one go. This process enables you to accumulate a specific share at different price points i.e. you end up buying more in falling market and less in rising market for a specified fund every month, thus averaging out the cost of acquisition.
Ignore noise: An intelligent investment entails focus on the investment theme and cutting out the noise. Avoid impulse buying or selling. Let the investment be process driven instead of emotion driven.
Avoid herd mentality: A smart investor charts his own course and avoids following others. Instead of following trends, anticipate them in advance. Diversify: Put your investible surplus in different stocks in unrelated sectors.
Volatility is the nature of equity markets. If one sector under-performs, others may out-perform, thus balancing the overall returns.
In addition, identify your risk tolerance. Risk and reward go hand in hand hence try identifying opportunities with the lowest risk and highest potential returns.
Balance greed and fear: Investors react to any event on the basis of these two emotions. An investor should analyse if the event (which has caused price volatility) has any material impact on the investment and respond accordingly.
A smart investor becomes greedy when market participants are fearful and becomes fearful when others go grreedy. Investment made when the market is under distress often bears spectacular results over the long term.
Handle envy well: An average investor is more concerned about what his fellow investor makes than what he makes.
He ends up joining the herd only to err. This is an outcome of envy. Instead, he should have conviction in his own portfolio.
Concentrate on the positives of your portfolio, monitor and make amends whenever necessary.
Finally, make a beginning as the journey of a thousand miles begins with one step.
Take calculated risk and get rewarded for the same. Do not fear losing money, every rich person has lost money at some point, but many poor people have never lost a dime. Playing not to lose money means you will never make money.