Eneza Fund Bid: 102.320200 Ask: 106.031295  Hazina Fund Bid: 122.329900 Ask: 126.766736  Hisa Fund Bid: 109.595700 Ask: 113.570674 Iman Fund Bid: 97.783600 Ask: 98.771313  Hela Fund  Daily Annual Yield: 0.626% Effective Annual Yield: %



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Roadmap to Savings & Investments

 If your liabilities are larger than your assets, you have a “negative” net worth. You’ll want to update your “net worth statement” every year to keep track of how you are doing.

The next step is to keep track of your income and expenses. Write down what you and others in your family earn and spend each month, and include a category for savings and investing. If you are spending all your income, and never have money to save or invest, start by cutting back on expenses. When you watch where you spend your money, you will be surprised how small everyday expenses can add up.

3.       Small savings add up to big money

If you buy a candy bar every day for Ksh 10, it adds up to Ksh 3,650 a year. If you saved that Ksh 3,650 and put it into an investment that earns 5% a year, it would grow to Ksh 4,658 by the end of five years, and by the end of 30 years, to Ksh 15,775. That’s the power of “compounding” Interest.

With compound interest, you earn interest on the money you save and on the interest that money earns. Over time, even a small amount saved can add up to big money.

4.       Pay off credit cards or other high interest debt

No investment strategy pays off as well as, or with less risk than, eliminating high interest debt.  Virtually no investment will give you returns to match an 18% interest rate on your outstanding debt. That’s why you’re better off eliminating all debt before investing. Once you’ve paid off your debts, you can budget your money and begin to save and invest.

5.       Save for a rainy day

Savings are usually put into safe places that allow you access to your money at any time. Examples include savings accounts and check accounts. There’s a tradeoff between security and availability; your money earns a low interest rate.

Most smart investors put enough money in savings to cover an emergency, like sudden unemployment. Some make sure they have up to six months of their income in savings so that they know it will absolutely be there for them when they need it.

But how “safe” is a savings account if the interest it earns doesn’t keep up with inflation? Let’s say you save Ksh 100 when it can buy a loaf of bread. But years later when you withdraw that Ksh 100 plus the interest you earned, it might only be able to buy half a loaf. That is why many people put some of their money in savings, but look to investing so they can earn more over longer periods of time.

6.       Understand what it means to invest

When investing, you have a greater chance of losing your money than when you save. You could lose your “principal,” which is the amount you’ve invested. But when you invest, you also have the opportunity to earn more money. Investing involves taking on some degree of risk.

7.       Diversify your investments

Diversification can be neatly summed up as, “Don’t put all your eggs in one basket.” The idea is that if one investment loses money, the other investments will make up for those losses. Diversification can’t guarantee that your investments won’t suffer if the market drops. But it can improve the chances that you won’t lose money or that if you do, it won’t be as much as if you weren’t diversified.

8.       Gauge your risk tolerance

What are the best saving and investment products for you? The answer depends on when you will need the money, your goals, and whether you will be able to sleep at night if you purchase a risky investment (one where you could lose your principal).

For instance, if you are saving for retirement, and you have 35 years before you retire, you may want to consider riskier investment products, knowing that if you stick to only the “savings” products or to less risky investment products, your money will grow too slowly. Or, given inflation and taxes, you may lose the purchasing power of your money. A frequent mistake people make is putting money they will not need for a very long time in investments that pay a low amount of interest.

On the other hand, if you are saving for a short-term goal, you don’t want to choose risky investments, because when it’s time to sell, you may have to take a loss.

9.       Learn about investment options

A vast array of investment products exists, including stocks, government bonds, money market funds, and Government Treasury securities.

Stocks and bonds are the most common asset categories. Before you make any investment, understand the risks of the investment and make sure the risks are appropriate for you. You’ll also want to understand the fees associated with the buying, selling, and holding the investment.

 

Associates

Chase Bank Ltd
www.chasebank.co.ke

Genghis Capital Ltd
www.genghis-capital.com

Winton Investment Services Ltd
www.winton-investments.com