Approaches to Investment: 5 Strategies to Use

 

While savings are a great step on your wealth creation journey, there’s more to it. Savings should be looked at as a boarding stage for the crucial part of the journey. Investment is the point at which things get exciting. Get it right and you will be in a position to smile at the future. Miss the bus and you will live to rue the opportunity. Investment happens when you use the savings you have collected to generate more money. It is releasing your money into certain trusted instruments with the aim of multiplying it. At the level of an investor, you are no longer working for money but finding ways of making your money work for you. What are some of the investment strategies you can deploy to get your money working for you?

Preparation

Before we delve into that, what are the signs that you are ready for investment?

You are ready for investment if,

-You can afford to put money away

-There are no debt obligations bogging you down

-You have enough to cover your bills after investment

-You have a good risk tolerance

This is determined by a number of factors including Age, goals, lifestyle, financial situation, expected returns, income and retirement window. The young can take more risks, the old have no such luxury.

What is an investment strategy?

A set of principles designed to help an investor achieve their financial and investment goals. Some are conservative, others are highly aggressive. They are not static and can be reviewed periodically so that you adjust depending on your circumstances. The best strategies should help you meet your financial goals and grow your wealth while maintaining a level of risk that lets you sleep at night.

There are numerous strategies you can apply towards investment. They include

1)      Value investing. This is the strategy that Warren Buffet has employed to grow his wealth through 6 plus decades. With this strategy you seek out undervalued stocks of companies whose intrinsic value is greater than what the stock price is saying about it. It works from the standpoint of how the market can be irrational in assigning value to different stocks. This irrationality gives investors unique opportunities to buy highly valued stocks at discounted prices. This is a strategy for those who are keen on playing the long game. With value investing you buy a business not just the hottest stock on the market. It requires significant research, effort and patience to hack.

2)      Growth Investing. Look for investments that offer strong upside potential when it comes to future earnings of stocks. It involves evaluating the current health of the stock as well as the growth potential. It is about looking at the prospects of a stock before you buy it. You look at recent records to see evidence of growth and whether what it deals in is something the public wants and uses. It involves fundamentally analyzing financial statements and factors about the company behind the stock.

You must be ready to analyze the management prowess of the executive team of the company you are investing in. How does it achieve its growth? Through business activity or borrowing? You must also look at competitors to determine whether it is a dominant player with a competitive advantage.

3)      Momentum Investing. With this strategy buy stocks on an upward trend. The slogan is buy high and sell higher. You are strictly driven by data and look for patterns in stock prices to guide your purchasing decisions. According to Rob Arnott the fees and expenses related to momentum investing negate the gains you would expect to get from the stocks. This requires you to be constantly on, making decisions about what to buy and what to sell. It can be labor intensive.

4)      Dollar cost averaging. This strategy focuses on Making regular investments in the market overtime. You choose a regular amount to invest every month. It is a disciplined approach and you can use automated features that invest for you. It saves you from the stress of market timing. When investments happen in regular increments, the investor captures prices at all levels.

Keeps you committed to saving while reducing the level of risk and effects of volatility. Not good for those with a lump sum to invest. Ideal for those with little amounts to invest overtime. It prevents spontaneous illogical behavior.

5)      Other Worthy Mentions

Buy and Hold

Time in the market is better than timing the market. Assumption is that short term volatility will be corrected by long term returns. This is considered lazy because of its passivity.

Core and satellite

Buy a large index fund as the core element of the portfolio and other little funds as satellites. This reduces risk through diversification, achieves above average returns with below average risk.

Tactical Asset Allocation

A style where the three main asset classes(stocks, bonds and cash ) are actively balanced to maximize returns and minimize risk.

Best strategy?

I wish it was easy to point at one strategy that beats all others. Unfortunately the answer to the question: what is the best strategy is it depends. It depends on the amount of time you want to use in the process of investing, what your end goal is, how much you have at hand to invest alongside many other considerations. As such, you should choose a method that resonates with you and keep adjusting through the different seasons of your journey. What strategy do you think you are going to use on your investment journey and why?

Financial Literacy Open Day coming up on 26/03/2022 at Hotel Green Court Latema Rd. purpose to be there and invite many to come alongside you.

 

 

 

 

The Beginner’s guide to savings: 6 avenues to explore

 

So you made your first dollar from a job, gig or business deal? What next for you? More often than not, it is not what we make that matters but what we keep out of what we make. Earning six figures is no guarantee of financial security. While there is a lot of good that comes with earning highly, if you don’t put systems in place, you are likely to fall into the famous rat race of trying to catch up with the bills. Clason in his timeless book, ‘The richest man in Babylon’ advocates strongly for the need to tame your needs and appetites. The way we are wired pushes us to adjust our lifestyle relative to our income and because of that it takes deliberate effort to stay on course if you are pursuing financial freedom. This is where savings vehicles come in handy. The need to tame the leakage of your hard earned money requires that you take steps to store some of it in places where it can grow to a level that will help you achieve your big goals. Here are six jars you can use to hold your monies for future use.

The Bank

Every bank I know has savings accounts that you can use to hold your money for as long as you need. I know the interest rates are abysmal to say the least but when that money is locked up in there, your chances of misusing it reduce significantly. It definitely is an upgrade from ‘mattress banking.’ I also know that many of us have savings accounts that have no savings to write home about. What you need to do is identify a bank that has accounts capable of locking in your savings by restricting withdrawals and giving you incentives to save with regularity. The KCB Goal account is a worthy mention in this regard. What other banks do you know of that offer this kind of savings accounts? When are you opening that savings account or funding the one you already have?

MMFs

Money market funds are a good place to hold your monies if your need to hold them for a relatively short duration-anything below three years. What they do is put together units comprised of shares and government papers. In buying a unit you are spreading the risk across several asset classes in a way that almost guarantees the safety of your money. The institutions which offer them will gauge your risk profile and advise you accordingly on what to buy. On average their interest rates are slightly better than savings accounts. It is also easy to liquidate them if the need arises. The CIC Money market Fund is one of the best performing ones in this category.

SACCOS

Just like the name suggests, these are outfits that help people save and borrow for both emergency and development purposes. When you get into a SACCO you buy share capital and also save through your membership. There are people who prefer to have their salaries processed through their SACCO rather than the bank. This makes it easy for you to transfer the portion you have set aside for savings seamlessly into your account. The shares earn you a dividend at the end of every financial year. This is a place you go into if you have chosen to stay long term because the share capital is non-refundable. You can only transfer it to another member if you want to exit the SACCO. Before you get into one, be sure that you want to stay long term. It is also better to be in a SACCO where you know people especially if you are thinking of borrowing for development. This is because of the need for guarantors. I belong to Stima SACCO and have enjoyed the experience so far. What is your experience if any with SACCOS? Is this a vehicle you would consider exploring?    

Insurance

Many people have had nasty experiences with Insurance companies especially in the General and medical business areas that they hardly have any time for an agent who comes seeking to enlighten them on Insurance and how they can save through policies. When your understanding of Insurance is limited to risk, you will have a difficult time understanding how a product will help you save for the future. Insurance companies have products tailored to help you in your long term savings journey including education plans and endowments. These pay a bonus every year in most cases accumulated and paid to the policyholder upon the maturity of the plan. There are added advantages including tax relief, life insurance, disability and loss of income covers. In my opinion this is one of the most underrated and misunderstood savings vehicles out there. As an insider in this industry, I can help clear the air on some of the questions you might have regarding how to use insurance as a viable vehicle for the planning of your future. Feel free to DM or ask questions in the comments for your benefit.

T bills and bonds

The government borrows from the public through treasury bills and bonds. The beauty of these papers is that they are as secure as any vehicle can be. It is very rare for the government to be incapable of honoring its obligations in paying lenders. The interest rate is also attractive. This papers fall in the category of both savings and investments because of the rate of return offered. Bills are short term while bonds are long term. Before you put in the money, be sure about when you need it out so that you don’t get stuck yet you have money trapped in places where you can’t get it out easily.

M-banking

This would have been the first option I brought up but since it is linked to a bank and I spoke about banks first, I kept it last. If you feel like you don’t have the time to go into the bank and get started, then your mobile phone is the easiest place to start. You can set up on M-shwari for example and lock your savings up until the time when you need to use them. Different banks also have apps and other platforms where you can initiate the process. There’s truly no valid reason why you cannot get started on this journey if you have the will to do it.

To do list

What other options can you add to the list? Of the six listed here, how many have you taken advantage of? Having learnt or familiarized with these six avenues, what is the next step you are going to take to boost your savings stating today? Share in the comments.

Next week we tackle  investment vehicles.

The Online Gold Mine

                      

Nearly every one of us is online at one time or another during the day. Some of us spend countless hours browsing mindlessly on Social Media. In the same breath, there are many who are making a killing and earning big bucks every time they are online. What are some of the ways in which these people are changing their financial situations and how can you get in on the action? What are they doing differently? What do they know about the online space that we don’t? How can we inculcate mindfulness into what we do online so that it brings in the big bucks for us as well? Here are a few things you can do.

Expand your mind and see possibilities

The world became a global village long ago. While it was inconceivable to work for a company thousands of miles away 30 years ago, today remote jobs are all the rage. Whether you think about it as an employee or a freelancer the opportunities are no longer restricted to your locality. That alone should tell you how unlimited the whole deal is. If you remain open minded, there are possibilities for you from all four corners of the earth.

Hone your Craft

One of the downsides of operating and competing at the global stage is that the pool is far much wider and with the best players you can imagine. Standard skill does not cut it t this level. If you want to ‘chill with the big boys’ as they say, your skill needs to be at elite level. While people competed locally in the past, today, a graphic designer can be hired from the Philippines by a Start Up right here in Nairobi.  The only way to play in the same league is to embrace the discipline of constantly honing your skill and craft. Do it by practice, study, exposure and everything you can leverage to become not just the best but the only who does it a certain way. Grant Cardone is an advocate of ‘Only Practices’ as opposed to best practices. Distinguish yourself by doing what no one else is doing in your industry or sector and people will beat the path to your door.

Consume Elite Content

We live in the best of times for anyone who wants to learn and grow. Anytime I open my Twitter timeline, I am bombarded with boatloads of wisdom from threads and singular tweets. Same happens on YouTube and a host of other platforms. This is the best age for self-directed learning. You can become adept at anything without needing to pay a penny if you are willing to put in the time and work.

Niche down

Become Super specific about what you want to be known for and good at. In a world where people are becoming pretty choosy about what they want, you want to be as specific as you can be. You shouldn’t put people in a position where they have to guess what your expertise is. When there’s ambiguity about it, it is possible for people to bypass you.

Eliminate Mediocrity and negative energy from your timeline

I love the mute button on Twitter and use it on a daily basis. All forms of Social Media have options that can help you cut off content that doesn’t add value to you. In the midst of all the noise, there are great pieces of content that would make a huge difference in your life. If you find yourself struggling to listen to what someone is saying because it doesn’t edify you, then give yourself the liberty to turn down their volume so that you have the energy to take in what is helpful.

Opportunities

There are plenty of opportunities you can take advantage of online. These include.

Content Creation

There is no shortage of opportunities to create content which can then be monetized. Content can be written, filmed or recorded. Some of the people bringing in the big bucks are into content creation. Think about bloggers, vloggers and pod casters who are making a killing in their respective areas. The key is to position yourself in a space where people need expertise and become the one who offers it. You have opportunities to earn through charging a subscription fee for your content either through a paid Newsletter, YouTube Premium among others. You can also get ad revenue once your numbers are good enough to attract the attention of advertisers. Better than advertising is paid partnerships where a company chooses to work with you because you are dealing with a demographic that captures the people they are interested in. There is a guy calling himself the farmercist on Twitter who is doing a pretty good job at this with Davis & Shirtliff. Content can also help you market your own products.

Virtual Assistance/Remote Work

The rise of Covid-19 has pushed virtual work into the limelight. While people have worked remotely for a long time, it is now becoming mainstream. Without living the comfort of your home, you can work with companies from across the globe and earn a living. There are companies that have chosen to go completely virtual while others have given their employees the option to choose whether to go back to the office or remain virtual. If you search diligently, you are likely to find a lot of companies willing to hire talent. If you are good at a particular skill, don’t limit your job search to your locality. Realize that opportunities are available on a global scale. Among the people doing a lot on virtual work in Kenya is VA Africa. You can check them out to know more.

Gig work

On sites like Upwork and Fiverr, you will find loads of opportunities to earn decent bucks. Whether you are looking for a part time engagement or want to do it full time, the number of opportunities is inexhaustible. What distinguishes you from the crowd is your level of skill and the ability to pitch for jobs. Developing these two will see you attract clients in large numbers.

Writing

There are tons of publications looking for article writers. Whether you have a way with words or not, you can develop writing skills and use them to earn a living. You can work as a ghost writer or choose to write for yourself. You can do Ebooks on topics you are proficient at and offer them for sale on platforms like Amazon Kindle and booksformysoul. The world could do with your wisdom and you could do with some extra bucks. See what a combination that makes? Walter Akolo has a very interesting and enlightening course on writing and tons of other resources that you can take advantage of.

Courses/Coaching

With everyone seeking to grow their skills, if you have something you are good at, you can find tons of clients online willing to pay top dollar for it. Identify your area of expertise and develop a course or coaching program around it. There are numerous platforms where you can put up courses for purchase. Some of the popular ones are Teachable, Udemy and Coursera. Coaching is boosted by certifications which help you stand out from the crowd.

Influencing

If there is an avenue that requires you to have a niche in order to stand out, this is it. The people who are making it big as influencers have narrowed their focus and become exceptionally good at serving their demographic. As a result, brands are willing to invest top dollar on them knowing that their word carries a lot of weight within their demographic. Is there a place where you can position yourself as the go to person? Are you passionate and willing to put in the work in a particular area? If your answer is yes, get down to work and begin to build a profile for yourself.

Sell and market online

This one is pretty old by all standards but there are people who are still leaving a lot of money on the table. If you are selling anything whether a good or service, it is important that you position yourself well digitally. Seek to understand how each medium works and how you can take advantage of it to have enough people finding you and your offers.