NAIROBI, Kenya, Dec 2 – It’s getting close to the end of the year, that time when we all get introspective and start to recount what we achieved and what we lost during the past year, and what we will do to get it right next year. Famous last words, right? Almost all New Year resolutions include a self made promise to save more and spend less, grow a personal investment portfolio, become financially independent by the time we retire.
Fact is, the consumerism in Kenya makes it that much harder to become financially independent anytime before we are back in diapers – of the adult kind! One surefire method of trying to become financially secure is by placing funds aside every month to invest in an asset that will generate a good return. But what, pray tell, is a good return? 10%, 20% or 70%? As the pyramid scheme scandals have demonstrated, there is a direct correlation between higher returns and higher risks. So either you place your investments in vanilla products such as shares, fixed deposit accounts or treasury bills and bonds or you start to enter more complex products such as land and housing for speculation, or investing in your friend’s car import business.
The long and short of it is that as an individual, your investment choices are limited by your income and your ability to borrow or leverage that income to purchase assets that generate a higher return than the vanilla products. However, investing as a group provides a significant channel of purchasing larger assets that should generate a better return than that derived by an individual, with the added benefit that the risks are shared across the members of the group. Now this is where we start to make mistakes. Many of us join groups due to peer pressure either from office colleagues, church members or old school friends all of whom want to do something together to generate an income. We know the “WHAT” which is to be a member of a group that will grow into a large land buying company but we simply do not know the “HOW” which is the methodology of growing our monthly contributions into the next Berkshire Hathaway.
We then meet monthly after the church service, or in a bar or a coffee lounge and come up with grand strategic plans which remain just that, grand. We place our funds in a Treasury Bond, or in equities at the Nairobi Stock Exchange and the braver amongst us even go as far as buying land in Kitengela, the next big growth area in development according to real estate pundits. But what is our long term plan? How long do we intend to contribute? When do we plan to start realizing our investments and living off our dividend income in the comfort of our mortgage free homes? Is our group structured with the right kind of individuals who can make decisions and more importantly, execute them? Have we placed the correct governance structure to protect all members from a wayward treasurer? The first steps to a good investment group is to ensure you have the correct membership that draws on different skill sets that can be exploited for the good of the group. The second step is to ensure that you are formed into a legal entity that can borrow, hold assets in its own name and has perpetuity beyond the individual members. Finally the third step is to create and implement a strategic plan that incorporates the group’s vision and breaks the vision down to quantifiable and achievable steps for execution. In the following weeks, we will explore each of the steps and get you started on the challenging path to financial freedom.