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!