WHERE SHOULD YOUTHS INVEST?

WHERE TO INVEST

As much as I always say, the BSI rule will win the day when it comes to creation and accumulation of wealth. By BSI, I simply mean, budget, save and finally invest. I adore those young people who ensure that they have saved something come rain come sunshine. I covered budgeting and saving which might interest you before you know much about investment. A fellow friend disclosed to me that he saves KES 300 every day. That is good money since by the end of the month, he will have KES 7,200 if I assume that he does not work or save on Sunday. By the year end, he will have KES 86,400. It is quite a considerable and sizable amount to boast around. But how long will he has to save the same to reach a million? It will take him about11 and half years. Assume that he started saving at 24, he will have it at the age of 36. But in between, he will perhaps marry, might change job or be fired and stay for some time without job. What will happen if at all a relative get sick and become admitted to level 5 hospital? He will start retrieving from his hard earned savings. This illustration indicates that BS (budget & save) is not enough to acquire financial freedom.  No wonder why NO. 1 of CNBC article notes that those who emphasize on saving more than earning may not become millionaires. Why? I will explain later. We need I (investment) to not only have a steady wealth but income that will accelerate us towards our financial freedom.

Having noted that, where do we invest? Many youths have less or no financial literacy. They do not know about buying and selling bonds, unit trusts and shares or even opening and operating businesses. They let their money stay in bank where the rich borrow and invest. There is much in this but I will narrow down to two categories of investments; for cash flow and for capital gains.  

fig. 1: investing in money markets

Cash flow investments are those where an investor buys assets which generate income. For instance, having shares from a blue chip company, listed in the NSE 20 Share Index. This may sound Greek to some. These are the 20 companies that are stock movers like Safaricom, Equity, KCB, EABL … name them. By the end of the year, you will earn dividends. You could have also bought M-Akiba bond and earn 10% interest payable after every 6 months. Moreover, many people who are landlords will always expect house rent by the end of the month. They do not have to work for it. Such is a passive income, where your money works for you even if you are at home or on a vacation. It is the beauty of having invested in assets that generate income on a regular basis. Avoid the instance that at 40, if you do not report to work, you will not earn. You can also start a business that will keep generating income to cover your daily and monthly expenses. Apart from real estate, many cash flow investments do not require much capital. For instance, investing in M-Akiba bonds needs as low as KES 3,500 down from KES 50,000 which the government sold bonds before and was only eligible to the rich. As for shares, you need to calculate the price of a share by 100 shares (the least one can buy at as single transaction). Cash gain investments are like buying land and waiting for its value to rise. For instance, buying a plot at Kamulu or Kamakis at KES 120,000 and hoping that after 3 years, it will have appreciated in value and sell at KES 250,000. It is also a good investment and sometimes pays more than cash flow investments. However, in a situation where economy is adversely affected i.e. there is recession, you might end up making huge losses. Another problem with cash gain investments is that you may not be able to convert them into liquid money quickly in case an emergency happens. Again, do not invest money that you may use in months’ time on this kind of investment.

Back to CNBC, why should one emphasize more on earning than saving. when you earn and save, invest in profitable areas to earn more. Let your savings finally purchase assets which will generate more income. As i demonstrated earlier, you will never make it better on savings alone. The same article states that almost all millionaires have more than one income stream. The moment you invest, you create a new income stream. 

With that wide knowledge about I (investment) I suppose that young people will not be stuck in BS only. Make wealth as the current capitalistic economy, anybody can acquire as much wealth as possible, provided he follows the right strategies. May you have luck as you move out to invest wisely!

Knowledge and skills: Keep expanding

*** NOTE: If you stop learning, you start dying.  ***

The world is dynamic, so is everything in it. One philosopher, Heraclitus, said, "You cannot step on a river twice." That means, when you step on a river, by the time you lift your leg to step again, everything has changed. Later, his student and a skilled philosopher, Cratylus, argued that you cannot even step on the same river once. From the time you touch the water surface to the time you reach the bottom of that river, everything has changed. The water you touched is already gone. That means change is inevitable and it happens so quickly. Always move with the trend.

fig. 1: Read as many books as possible. Nature, Science, Media, Digital businesses, Ecommerce...

While many people learn to get white collar jobs, it is even more important to learn while operating your business. When you work for others, like a company for instance, bosses laugh. They leverage on your knowledge and skills for their own advantage.  That does not mean you should not work for them, but it could have been better and more advantageous if you pour all that knowledge to your business. It will pay more.

“The best advice I ever got was that knowledge is power and to keep reading” – David Bailey, English fashion and photographer

Keep learning something new day in day out on how to improve your business and make more profit. Learn from books, journals, magazines and from online sources to gain the specific and general knowledge in your industry.  Moreover, keep expanding your business and diversify to even new ventures to create a conglomerate. Companies like Dangote group of companies, owned by the richest man in Africa, a Nigerian called Aliko Dangote, ranges from sugar retail to manufacturing of cement. Even the big multi-national companies always have more than one line of product which all contributes towards the overall gross profit.  Google started like a search engine back in 1998. Today, it has venture everywhere. Smart home by acquiring Nest (2014), transport, by introducing Google auto (changed name to Waymo), a driverless car subsidiary, cloud, by introducing Google Cloud Platform, mobile, by acquiring Android (2005), video content, by acquiring You Tube (2006) among other ventures. All these contribute to its gross revenue of almost $100 billion annually, which was not there in the early 2000s.  This is a good illustration of diversifying through knowledge-acquisition and applying the same in growth. 

As I said, once you step out to the field of business, together with the right information, you will be able to seize opportunities as they show themselves, as Warren did. You will grow like a tree from the mustard seed (smallest seed, yet it grows to be the biggest tree in the forest). You should also know what competitors (if you are in a competitive business) are doing to kick you out of business. With that information, you can easily make informed decisions on how to deal with such matter. Keep your eyes wide open, and ears wide open.

“An investment in knowledge pays the best interest” – Benjamin Franklin, scientist

*** Knowledge and skills success tips ***

Ø  Always keep learning. This expands your knowledge and skills to conduct your business.

Ø  Always expand your business.  Diversify to new profitable ventures to increase your revenue.

Ø  Leverage on technology and innovation in your business.  These eases way of doing business, reduce costs/expenses, thereby, increasing gross margins and profits.

ROLE OF BANKS IN CREATING WEALTH

Role of banks

Today I want to talk about the role of banks in creating wealth. I was told that there are two types of bank customers in this world; those who save and those who borrow to invest. What kind of customer are you? Saving or borrowing? When you save, you move closer to your dreams but when you borrow and invest in a project or business, you move closest to your dreams. In wealth creation, saving is referred to as step 1 towards wealth creation and accumulation while borrowing (which mainly comes after saving for some time) becomes step 2. Saving alone will not create any significant wealth. In fact, when you face retrenchment, you will start draining the few coins you have saved and end up with your initial position. However, if you invest, you will create a cash-flow reservoir where you will be receiving dividends (in case of shares, unit trusts or bonds) or rent (in case of owning a rental property).  Investing is like owning a cow, where you will get unending cash from milk and you remain with your cow for long. Believe me, you will never lack milk. It is only the proven way to disengage from the yokes of employers. The truth is that banks encourage ordinary people to save so that they can loan the rich to complete their projects. The rich work smart by creating personal relationship with banks and hence, they can access any loan to advance their wealth.

Figure 1: Outside one of Equity bank branch in Kenya 

“At its core, banking is not simply about profit, but about personal relationship” – Felix Rohatyn, American investment banker and author of Dealings: A Political and Financial Life

Banking industry plays a major role in the society. It is so crucial in any country's economy and if it fails, the entire economy might collapse. This was witnessed in the global financial crisis that occurred in years 2007-09, which started in US. Many businesses collapsed due to fall of the banking industry. You have seen banks close or move under receivership and many citizens lose millions of cash, where others start to wallow in abject poverty. The same industry makes kings and queens by giving loans to people who develop businesses and finance other mega-projects. Make a bank a friend and you will never regret. Create a healthy relationship by building your credit worthiness/ score and they will not fail you. However, borrow when you are expanding/ investing.

As I have come down outlining to you where you can take a loan to venture and where you should reconsider while thinking of a loan, this precisely shows that you can use banks to achieve your goals faster.  People say that their properties have been auctioned due to failing of repayment of loans.  It happens more often BUT let me give you a hint on how to circumvent this.  Bankers are people will always consider you if you decide to visit them and tell them about your situation. They will always listen. After all, you are a member there.  For instance, your agreement was to pay KES.15, 000 a month. Then in the midst of your paying period, let’s say after 3 months, for other reasons like economic issues or emergency cases at home, tell them you will make KES. 7,000. They will understand and if this persists, they will recalculate your loan to harmonize the books.  After all, loans can be repaid in a longer time like 5 -7 years. So, make sure to run on shoulders of giants.

*** NOTE: Many of big projects are financed by loans.  ***

WHY THE WEALTH IS FOR THE FEW CHOSEN

Do you believe in luck as far as wealth is concerned?

I personally believe it as an additive in the wealth creation. However, it is not the actual cause of wealth? People bet and win. It is luck. People find an amazing multi-million deal and become wealthy which is also luck. However, in all lucky moments, they must have taken an initiative. As much as I believe in wealth, I also strongly believe in the fact that very few make wealth in luck. Was Bill Gates lucky? Sure he was. He was not the only person who knew programming at his time. However, when he heard about MITS when in Harvard, he and his friend Paul Allen took an initiative to leave school and move with courage that they would deliver the first PC software; Windows.

Secondly, it is true that the first software Gates created was far from perfection. It however worked. Sometimes, we do a lot to maintain perfection that we lose our focus. It then consume much of our time that we fail to deliver on time. I like what Google believes in; if you fail, fail quickly. So, deliver something to the market faster and if it succeeds, keep improving it. If it fails, do not dwell much on it, move to something else. Another thing that Google puts in practice is beta kind of life. Life is beta. Life is about improving. Now, look at search. When we search something and put a wrong text, it gives back better text. Did you mean ‘so and so…?’ This is perfection which was not there in 1998 or even 2010.

Therefore, even if you have some luck, take some initiative. Luck alone will take you nowhere. Just believe that you are chosen alongside the few. So, when you plan for your day, plan for your future. When you do the following, luck will follow you and you will be among the few chosen. Remember that no little money when budget and there is no much money when spent anyhow.

a)     Take financial classes and learn to set goals and achieve them.

b)     Learn to manage finances. Even if Michael Dell (founder of Dell Computers Inc.) is a billionaire; he created MSD Capital to manage his wealth wisely. Jeff Bezos has Bezos Expeditions and Bill Gates has Cascade Investments LLC, just to manage and invest their wealth. They knew their billions might end if managed poorly. Who are you not to have an investment portfolio?

c)     Budget, save and invest; the BSI rule. With a budget, you do not buy what you want but what you need.

d)     Increase cash flow through passive income. This is possible through investing.

e)     Keep improving. If you are earning $3 a day, learn how to increase to $5, $10, $15 and so on. This is also possible through investing and diversifying incomes.

f)      Never settle on the average. There is always a bigger picture than you see. If you have not reached where Bill Gates has been or where Jeff Bezos (the richest man on earth as of 2018) is, you can still do more provided you are healthy.

g)     Retire early, possibly at 50. If you start investing at early and mid-20s, you will have much wealth at 45 and by 50, you will retire rich. You will then enjoy your wealth like a gentleman. It is painful to work like a security guard at 60, to consume the night cold when others are asleep.

So, be among the few chosen by applying the above initiatives. 

HOW TO GET RICH: FOOD FOR THOUGHT

I was talking with a friend of mine on what it takes to get rich. He thought for a while and gave me his story. He has ideas. He would want to invest in real estate because it has wonderful returns. He would get $1000 per month. He even did some calculations, estimations and margin errors and I too discovered that he was good in math. Moreover, he added that agribusiness was also another venture in his mind. Having an acre of tomatoes and other greens would make him wealthy while still young. This guy is incredibly smart! But I asked him one question: what is holding you back from reaching all these perfect dreams? What is dragging you behind while time seems to run at swift speed? His answer was very simple: cash. He has no money to start any meaningful project. He was 27 by the time we were talking.

fig. 1 Change mentality and build wealth

I thought hard about cash and whether it was the real cause of his dreamer but non-doer situation. I know you have joined me in this conversation. Is cash the real challenge that many youths experience and put as an excuse for their inability to perform? I like challenging youths whom I see being potent of success yet; they are wallowing in abject poverty. Another friend of mine told me that in two years ago, he had set a strategy of saving KES. 100 on a daily basis, only to invest in the end of the year. The amount would be (100 * 365) amounting to KES. 36,500. Again, he saw that the amount would be small after being a disciplined saver for a whole year. He called it a waste of time and resources. I asked him, now that it is two years from then, how much have you saved? The answer was nothing. I advised him that if he had strictly followed his strategy, it would be KES. 73,000. With such money, one can buy a plot of land in a somehow interior but developing region. He can also invest in appreciating stocks like Safaricom and earn annual dividends besides the initial capital gain. Why do people think that KES.100 cannot make you rich? Alternatively, he could also invest in m-akiba, the government bond, and earn 10% annually, KES. 7,300, payable twice a year. Let me not concentrate on him because I feel like slapping him on the face… all one needs to know is that you will create wealth through accumulation of small amounts. Again, if you look for 10 years and think that the little will earn you less by the end of such lengthy period, 10 years will come. And hopefully, you will be alive and will have nothing. Save small and invest because what matter is discipline. If you cannot save and invest in small amount, why do you think that you will invest much even when you will earn it?

Back to my initial story. At last, I had an answer. Owning the first rental house is the only challenge. Buying the first matatu is the biggest breakthrough. Because, if you can manage it, you can buy 10 or even more. You can just leverage on OPM ‘other people’s money’ such as bank loans or angel money and build your investment portfolio. So, the question is; how will you get the first ‘thing’ and finally stream towards more of it. My answer is simple and has been answered in the paragraph above. Save even if it is little and invest in areas that might not need high initial capital. Buying a lorry may require high capital. Buying a land to construct rental flats needs high capital. Investing in m-akiba or other fund investments is for everyone. For instance, the guy who bought m-akiba with KES.20, 000 in May 2017 will earn KES 6000 in the 3-year period of maturity. May seem small, but incremental and sure! 3 year will come and those who saw the return as insignificant will probably have nothing. Please, build wealth in the most genuine way. You will realize that later, you will venture in your area of interest in a better way.

Real estate business

Real estate business

“Real estate investing, even on a small-scale, remains a tried and true means of building an individual’s cash flow and wealth” – Robert Kiyosaki, author of Rich Dad Poor Dad

4.1 Owning rental flats

Who owns the big cities? It is the owners of the buildings that together make that city. The recent research made in 2017 showed that many of the people who joined the million dollar club, from Kenya, came from real estate business. Take a scenario where you own a 7- floor flat. Each floor has 10 rooms on each side of the corridor.  So, a floor has 20 rooms. 7 floors have 140 rooms. If each room you rent a cheap KES. 3,500. It generates a total of KES.490, 000. This is not in one month. Annual revenue goes around KES. 5,880,000. If you are rich enough to have 5 of such flats, you will amass KES. 29, 400, 000 in one year, while sitting down

If you happen to get one flat, getting others is a matter of little time.

*** NOTE: In life, you just need to break-even. After that, wealth will be following you. Some ventures are easy to break-even/ enter while others require lump sum cash. ***

If you want to start this one, (better than venturing in agribusiness for some) a big question now comes, how will you own a plot/ build one? They belong to landlords. Yes, and you can be one. Everything in life has a strategy/ a formula to work it out. Remember, a person saving KES.300 a day to one day own a plot. Absolutely

Here’s how. After a couple of years, you will be able to have funds to buy a plot. How much does a plot cost? Starting from a staggering KES.70, 000 to millions Do not go for the million one, because that it is not costly depending on where it is, but because you don’t even have such huge amount of cash. If possible, find a friend to venture with. However in 2 years you must have save at least KES.100, 000, if saving KES.300 a day. So, you can buy a plot alone with this.

*** NOTE: I do not recommend buying an empty land/ plot with a loan, IF, you are about to quit your salaried job. You won’t be able to repay the loan because empty plot will not generate income ***

 The above NOTE is what makes this venture not be of choice for a slim-income earner, who is about to quit job. If the area is growing and more people are coming to stay there, maybe there is a college near, you can build hostels. Then, you can secure a loan, not to buy the plot, but to build. Then, you can negotiate with a bank on how you will service your loan slowly by slowly. It can be a 5-year loan so that your plot will not risk being auctioned. When things go well, lucky you, you are a full landlord like other men and women out there.

When you finish the loan, take another to buy new plot because you have already break-evened. You are a multi-millionaire now. Banks respect that and will never turn you down on a loan application.

The best suggestion here is to have a job while you build your plot. It does not have to be decent. The earlier job we discussed is still okay. This will make you not to be much dependent on the plot for you to eat. What if it does not get tenants on the first day of completion? Won’t you sleep hungry, yet, you are wealthy somewhere? You need a healthy cash-flow to cater for your needs as things straighten themselves. After all, you have a lot of time to spend.

*** CAUTION: Real estate should not be the first venture to enter not unless you are employed somewhere you are not quitting soon. Agribusiness among others can sustain you even if you quit the very first day, because you can borrow loan as we saw. As for real estate, it has two phases/ processes; buying a plot phase and building phase. It makes it more expensive.  ***

When you have goods returns from other hot ventures, enter into the lucrative real estate business. You won’t work under duress/ pressure. After all, you have amassed wealth to sustain you before this picks up. However, before even venturing in the property development arena, there are other areas where you can invest, still in the real estate industry because it is wide.

James, a daily farmer in Kiambu County, Kenya

CASE STUDY

James, a daily farmer in Kiambu County, Kenya

                In 2012, James was farming rabbits. He has several of them till a time when a disease attacked many and he almost lost all of them. The few he managed to save were sold and later he bought a calf. After grazing it for a year, it needed a bull. He contacted a nearby A.I. expert to render his cow AI services. After nine months, a calf. James was now a registered seller of milk to the nearby daily factory in 2014.

               After selling milk for a whole year, James had made his account relatively rich. He approached his bank for a loan and bought another cow, hybrid, that he could milk 35 liters. By this time, he was selling a total of about 50 liters. Guess what he was making?

-        1 liter = KES.35

-        50*35= KES.1, 750 a day.

-        1750*30= KES.52,500 a month

His two cows were consuming KES. 210 a day

-        1750-110= KES.1,540 (his profit)

-        1540*30= KES. 46,200 (monthly profit)

                After repaying that loan, in 2015, he took yet another, to add another cow. This time, he bought a higher grade that could give him 42 liters. So, in total, he was now selling about 92 liters.

-        1 liter = KES.38 (had increased)

-        92*38= KES.3,496 a day

-        3220*30= KES. 96,600 a month.

Three cows were consuming a total of KES.410

-        3496-410= KES.3,086 (his profit)

-        3486*30= KES.92,580 (monthly profit)

-        This amounts to KES.  1, 110, 960 a yearly profit

               With this he was no doubt able to repay his loan fully. He also admitted that he was adding other cows in his shed. And guess his age? A youth of 26

Agriculture is always a better venture, provided you know where you are venturing- do research.

“A form of protectionism should be enforced at a national level, at least on strategic areas such as agriculture” – Martin Marechal-Le-Pen, French politician

*** Agribusiness success tips ***

Ø  Put a working strategy. Decide where to venture.

Ø  Always grow. Keep increasing.

Ø  Save in banks. This will build your credit-worthiness.

Ø  Take a loan when you are investing. Make sure your investment pays well.