This archive report was first published on 16 July 2021.
10 Principles for Wise Investment Decisions ¶
Investing in Kenya can be a lucrative venture, but it's essential to approach it with caution and knowledge. Economic and Financial Analyst Ephraim Njega shares 10 key principles to help you make informed investment decisions and avoid scams.
Firstly, it's crucial to understand the nexus between risk and return. When considering investments, think about the corresponding risks involved. There is no investment without risk, and even government securities carry risks such as inflation. Serious investment is about taking calculated risks.
One of the greatest risk management tools is diversification. As the saying goes, 'don't put all your eggs in one basket.' Always invest in different asset classes, and even within one asset class, invest in different categories. For instance, invest in real estate and stocks as two different asset classes.
Because of the inherent risk in investment, you need to be aware that you can lose all the money invested. Neither return on capital nor return of capital is guaranteed. Don't invest what you can't afford to lose or you will in the end lose yourself to stress.
Understanding your personality and how it influences how you invest is also crucial. You should also understand your risk management personality, risk profile, and risk carrying capacity. Are you a risk taker or risk averse? If you are a risk taker, be careful because you are more likely to be driven by impulse.
Investing is driven by knowledge, and before investing your money in something, begin by investing in knowledge about that asset. Only invest when you are confident you have enough knowledge about what you are getting into. Before you invest in cryptocurrencies, understand what they are and the blockchain technology behind them.
It's also essential to understand the sentimental and fundamental issues that drive financial markets. Prices of traded assets are influenced by both subjective and objective issues. Emotions such as hope, fear, and greed are key drivers of prices. Objective reasons such as performance of the asset also play a key role.
Don't follow the markets blindly, and whenever you hear hype about an asset, be careful not to jump in blindly. If you hear for example that the price of Bitcoin is rising sharply, ask yourself why? Is the reason behind such a rise likely to sustain the price rally and for how long?
Lastly, the house never loses, and this is a well-known maxim in gambling but you can also use it when investing. Think about the person selling you investment or urging you to invest. In most cases, this person will profit whether you gain or lose.
By following these 10 principles, you can make informed investment decisions and avoid scams in Kenya.
Published on July 16, 2021.
