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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