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The Eleven Pillars of Investment
Investing is not as difficult as it looks.
The first step is to ensure that you select a reliable financial partner. This will ensure that you establish that they have a consistent past. This will help to avoid the danger of losing your investment or lower returns. As our partner, be sure that you have chosen a good and a stable partner.
Simplicity
Incase you are not sure on which fund to invest in, a first step would be to split your portfolio or investment. You can beginning by putting a portion into the Equity Fund, a portion into the Balanced fund while the remainder stays in the Money Market Fund
Time matches on
Ensure to maximize on the magic of compounding which enhances capital maximization. This means that the longer you invest, the more advantageous it is to you. This concept works in that if you have ksh 500,000 and you earn an interest of Ksh 5000 the first month, this will mean that the next month, your new base will be ksh 505,000. If the interest rate does not change, the next month you will receive 5,050 and the cycle will continue. With time, you will realize that your money will have increased significantly.
Nothing ventured, nothing gained
In order to earn higher long term rates of return, one has to undertake reasonable interim risks. The higher the risks, the higher the potential returns
Diversify, diversify, diversify
There is a wise old saying that do not put all your eggs in one basket. The risk is that you may loose them all incase of a fall. This principle is key because it ensures that should one sector of the economy fall or experience losses, then you have the benefit of relying on the other sector and thus this will help cushion you from the losses. This would have been different compared to have put all you finances in one sector. The Mutual funds in their very nature ensure there is diversity. This is because the different funds consist of a portfolio of different investment classes. This therefore helps to reduce the overall risk of the portfolio
The eternal triangle
This triangle is made up of Risk, Return and Costs. The term risk can be defined as To expose to a chance of loss or damage. Return – To produce or yield profit or interest as a payment for investment Cost – The total spent for goods or services including money, time and labor.
The higher the risk, the higher the potential returns . You must also be willing to incur costs
The powerful magnetism of the mean
Every investment experiences volatility hence do not be worried about the short term fluctuations both upwards and downwards. Over a long term, the mean performance is always on an upwards slope. You should therefore not panic if the fund performance is fluctuating because in the long run, any well managed fund will always be on an upward trend.
Intelligent investing involves choices, compromise, and tradeoffs.
All this will depend on your financial position. The investment option that you decide on will mostly depend on your goals, plans, priorities and expectations. You have to discipline your self to invest even though you may not enjoy the immediate benefits of your investment. You have to invest money to earn more money and it is not always an easy decision as it involves sacrificing your immediate use for future use.
Beware of fighting the last war
Always avoid the last minute investment. Plan and strategize early enough to avoid making rushed decisions which may end up being erroneous.
You rarely, if ever, know something that the market does not
The financial markets reflect the collective knowledge, judgment, hopes, and fears of investors everywhere. It is therefore very unlikely that you will know anything that the market does not know therefore impossible to make and realize abnormal gains in the long run.
Think long term
Short term volatility should not alter your investment plans. Fear, greed and a short-term investment approach act as hurdles that frustrate the investor from achieving his/her investment goals. Historically, as well as globally, investing in equities has been beneficial in the long term.
This is because the stock prices in the long run are primarily led by the fundamentals of companies namely growth rates, long term prospects, competitive advantage etc. It can be said that long term investors will always make money be it small or large. |
