Everything you Need to Know about Investing in Kenya
Egla Kerubo  |  Jan 17, 2020  | 
Investments
Egla Kerubo  |  Jan 17, 2020  |  Investments
       


Young professionals are always being bombarded with the same message as far as their money goes: don’t waste it; save it or invest. Even though this is sound advice, it is taken for granted that people understand the basics. However, the vast majority may not even know what investment options exist in the market, the differences between them, and perhaps most importantly, which ones would suit them best. Not to worry though. This cheat sheet should help you understand all you ever needed to know about investing in Kenya.

Investing is basically buying an asset with the expectation that it will appreciate, or you can sell it for a profit. This way, it earns you a return. Usually, the investment option you choose should depend on five things: the returns you are looking to earn, the risk involved, your investment horizon, your tax profile and your liquidity needs.

Returns are what you expect to get when you make an investment. It could come as interest for fixed deposits, dividends from shares, or, capital appreciation and rental income from real estate. Different investments offer different returns. Your investment horizon is the length of time you want your investment to span – you may want to leave your capital there for years or just a few months. It really just depends on what your financial goals are. Your tax profile matters because like death, taxes are a constant. You need to be able to ensure that you are not paying more tax than the returns you are making.

Risk may be the greatest consideration when figuring out your investments. It is defined as the uncertainty that you will not earn the return you expect. There are many types of risk, but what matters is your risk appetite. Some investors are risk averse, meaning they prefer investments that bear little risk. Others are the complete opposite, investing in instruments that are considered high risk because of the potential payoff. As the saying goes, high risk, high reward. There is nothing wrong with either approach – it all comes down to what you prefer.

If you are trying to figure out what investment options would suit you best, the summary below should help. We have classified the different investment options and for each, outlined the type of returns they offer and other distinguishing factors that can help you reach a decision:

Asset class

Returns

Volatility

Liquidity

Suitability

Equities

Dividends

Interest income

High Volatility

Moderate to high liquidity

Short-term & long-term investors

Fixed Income Securities

Interest income

Low volatility

Moderate to High liquidity

Short-term & long-term investors

Mutual Funds

Capital appreciation

Interest Income

Dividends

Low volatility

Moderate to High liquidity

Short-term & Long-term investors

Private Equity

Dividends

Capital appreciation

Relatively stable

Low liquidity

Long-term investors

Real Estate

Rental income

Capital appreciation

Relatively stable

Low to moderate liquidity

Long-term investors

Derivatives

Capital Appreciation

Relatively stable

Moderate liquidity

Medium to long-term investors

Structured Products

Capital appreciation

Dividends

Interest Income

Low to moderate volatility

Moderate liquidity

Long-term investors

Pension funds

Capital appreciation

Dividends

Interest Income

Low to moderate volatility

Moderate liquidity

Long-term investors


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