Investor sentiment influences the demand and supply of securities in a market. It is defined as the overall existing outlook of investors as to expected price changes in a market. One example of investor sentiment is fear, which is the fear of losing money and making mistakes when you put your money in an investment. Many people in Kenya are held back by this fear because they do not understand the underlying risks. In addition, they are not aware that as an investor, you can have your own level of risk preference that will earn you a return, though not as much as you would like if you were risk averse.
The common investment myths that are prevalent in Kenya are analysed below. First, the mentality that to invest you must have a lot money, implying that investment is for the wealthy. Most investment vehicles today are tailored to accommodate every class of investors there is. For instance, to invest in a money market fund, the least amount required is Kshs 1,000, which is ideal for first time investors. To invest in stocks on the other hand, you will most likely require as little as the shares costs, as long as you are able to purchase the minimum number of shares (100) required. These are not hefty sums. Besides, you may find you have these funds earning minimal interest in a bank’s current account instead of a savings account.
There are also myths followed by investors that lead them to make wrong investment decisions. If you ask people what they would do with a large sum of money, the most common response is, “buy a plot and construct a house/rental.” The belief that the ultimate investment destination is rental property is misleading. It doesn’t account for saturation, vacancy rates in the sector, and demand. It also fails to consider the cash inflows that will arise from the investment. If you expect the income you shall receive from your rental property to earn you worthwhile returns, it is important that you fully know the type of market you are venturing into.
Other than rental properties, there are other real estate properties that will generate great returns. For instance, if you own a property near an industrial park, warehouses and mixed-use properties may generate you more returns as compared to the latter, with fewer renovations and maintenance requirements. Also, if you own a piece of land near an estate (apartments, gated communities and the like), playgrounds, gardens and parks are things you can invest in.
Finally, another mistake many of us make is measuring our level of wealth from the income we earn. In truth it should be measured by the income we have put away to grow. The myth here is that savings alone can make you rich. The real key to wealth is to be able to earn in future what you earn today, assuming you are at your peak. There are a number of investment options for risk-averse investors such as government securities, fixed deposits, fixed income funds, and corporate bonds.
The key lesson here is to educate yourself to ensure that your financial and investment decisions are made from a point of knowledge, not assumptions.
Money Market Funds (MMFs) in the recent past have gained popularity in Kenya with growth rates outperforming that of bank deposits. This much faster growth of MMFs relative to bank deposits may be...
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