The top frequently asked questions on investing

Investing is the act of acquiring assets with an aim of benefiting positively due to appreciation of value in the future, most preferably the near future People invest for several reasons with the main reasons being to grow their money and as a way of saving for retirement. There are different types of investments such as shares, real estate, cash, fixed income investments, business, and so on. Here are some frequently asked questions on investing.

1. How Does The Investment Work?

Investors need to understand how an investment functions before they can engage themselves in it. Since investment schemes are aimed at profit-making, investors insist on understanding how this will happen. How will the money they invest in a certain project be used to make a profit? This is very important to understand before getting into any investment opportunity.

2. What Are the Risks Involved?

Before deciding on investing, a person has to know what risks may be involved and if they are comfortable with taking these risks. Risks in investing differ depending on the type of investment. The most common type of risk is market risk which is the depreciation of value of an investment due to economic developments or any other occurrences that may affect the entire market. Another common risk is inflation risk. Inflation erodes the value of money and its purchasing ability hence the same amount of money can buy fewer goods than before. Other types of risks include credit risk, interest rate risk, and liquidity risk, just to mention a few.

3. Where should I invest?

It is quite hard to decide on what to invest in especially since there are so many new, old and upcoming opportunities. A good place to start is with money market funds (as they help you build an emergency fund and build up cash for opportunities) and index funds since they give access to a large network of stocks, have lower risks, and you can start small.

4. What Kinds of Returns Should I Expect?

There is no way of guaranteeing future returns but by looking at past trends and evaluating past performance of financial instruments experts can roughly predict what is likely to happen in the future, although it is never certain. Investments in certain asset classes have a “typical” return that they offer. Seek financial advice on whether an investment return is reasonable or not.

5. How much risk should I tolerate?

The amount of risk you take will be determined by your ability to take on risk – which is influenced by your personal circumstances – age, wealth, responsibilities, liquidity needs, and so on, as well as your willingness to take on risk.
Begin with a small percentage of your available resources when starting out, understand the opportunity, then once comfortable decide whether to invest more money or withdraw from an investment.

6. When is the right time to invest?

It is almost impossible to time the market, no one can predict the exact time when markets will stop falling or when they will reach their peak. Particularly when it comes to investing in stocks.
Choose the asset classes that you will focus on and keep investing through the ups and downs.

7. What Will Be The Cost of Buying, Holding, and Selling?

Investors need to know the amount that will be required to invest fully in a project, or when buying shares. It is among the most basic things so an investor may know if he or she can afford a particular investment. Another important aspect is whether the profit made will be taxed.

8. When should I start investing?

As soon as you earn an income, you should start investing. It’s never too early to begin. Once you’ve built an emergency fund, or a safety net with at least 3 to 6 months of your monthly expenses, start to invest.

9. If I Have a Small Amount of Money is it Worth Investing?

Investing even with a small amount of money will build consistency, and you will benefit from the power of compound interest over time. We think you should start where you are but aim to grow your investment amount over time so that it can actually fund your retirement. Kes 2,500 invested every month consistently earning at least 10% p.a. will result in Kes 17.8 million in 35 years!

10. How can I become disciplined when it comes to investing?

Think through your goals, when you have a why, a purpose or a mission, it gives you focus and it becomes easier to stick with the things you need to get done. We love this quote from Gary Keller: “The primary characteristic I have found in the lives of high achievers is that they had a strong drive to succeed They had a compelling, personal reason to achieve. It is what I call a Big Why.”