This archive report was first published on 18 December 2019.
With the start of a new year, many Kenyans are looking to improve their financial situation through investing. However, investing can be intimidating, especially for those new to the world of finance.
According to a 2019 article, the investment journey is full of uncertainty and risks, but with a deliberate approach, it can be a worthwhile venture.
Setting Clear Goals ¶
Before investing, it's essential to set clear goals. What do you want to achieve through investing? Is it saving for your children's education, paying for a wedding, or building a house? Your goals will determine the type of investment you choose.
For instance, if you're saving for your children's education, you'll want an investment with low risk that appreciates steadily over time. On the other hand, if you're saving for a wedding, you'll want an investment with flexible withdrawal arrangements and a guarantee that your money will be available when you need it.
Understanding Your Financial Position ¶
It's also crucial to understand your financial position. You need to know the cost of locking cash in an investment where the returns are not immediate. Setting smart goals is essential for any serious investor.
Other goals include buying a house, starting a business, saving for retirement, or creating a legacy. Once you're clear on why you want to invest, be realistic about your finances. Make sure that the amount you're left with after investing is enough to meet your regular expenses.
Starting Small ¶
Today, you don't need a lot of money to invest. You can start with as little as Kshs 1,000. This means you don't have to punish yourself by investing more than you can afford.
Be willing to start small. Once your finances are in order, learn a bit about investing so that you can make rational decisions.
Understanding Your Investment Vehicle ¶
Find out as much as you can about stocks, bonds, mutual funds, and other investment options. This will help you understand the dynamics of the investment vehicle you choose.
Setting Priorities ¶
Setting priorities will help give you focus. What is more important to do first, build a house or save for retirement? Your age will have a big impact on what you choose. Focus on what is important and build on the rest progressively.
Starting Simple ¶
Starting simple is also crucial, especially if you're a first-timer. There's no harm in being ambitious, but if you take on very risky investments with the expectation of earning quick returns, it may end in disaster.
Test the waters first. Invest a small amount in a fund and monitor the performance. If you succeed with those, then slowly you can expand to more complex investments.
Diversifying Your Investment ¶
Finally, invest. If possible, invest in diverse areas so that you protect your capital. This just means not putting all your eggs in one basket. When you diversify your portfolio, when one investment does badly, it's offset by the others that do well.
Always study your portfolio to find out what works best with the market conditions at a specific point in time. Other investment options include unit trusts, real estate, and private equity vehicles, which offer attractive returns.
