“ Success investing starts with courage.”
Investing has always been seen as a controversial issue, and it does not need to be, if only it approached in the right way. First- off I want to say every day we are faced with investment decisions. They may not necessarily be financial decisions, but they do require you to invest yourself somewhere. We make investments of our time, you choose when you will meet with your friend for coffee after work, investing in your friendships. You choose to attend evening classes instead of going home straight in the evening to chill, investing in your education. You choose to take on the tough assignment at work, stretch yourself, and invest in your career. You choose to learn a new skill that will lead to you expanding your business. I could go on but you get the drift.
Investing financially has sometimes been misunderstood and I would like us to discuss some myths that we need to leave behind in the new year.
1. Investing is Risky
Nothing could be further from the truth. What I see as risky is not investing at all. However, I do understand where this myth could be coming from. We as individuals have different risk profiles. Just as it is in real life. Some of us love fast vehicles, while others love the speed of motorbikes in equal measure others would rather travel in trains than in airplanes. Different strokes for different folks.
If you believe investing is risky, I will encourage you to find out your risk profile. The risk profiles range from low-risk profile, medium risk profile to high-risk profile. There are various tools on the interwebs to help you with this but you can use this one to do a self-assessment.
It will of course be useful to match your risk profile with your life circumstances, both financial as well as your age.
Usually, the younger you are the higher your risk profile because you probably do not have a lot of obligations as well as should your investment not pan out you will have time to recover. Conversely, if you are approaching retirement, it would be important to adjust your risk profile to low risk, because any losses could end up being catastrophic.
The trick is to find a good balance.
2. Investing is equal to getting quick riches
I am smiling as I write about this. I wish it were true for all our sakes, but it is not. Investing is anchored on value and value must continue to be created for you to earn more. Of course, this does not stop people from preying on others through pyramid schemes and other avenues of defrauding people of their hard-earned monies.
The truth is investments take time to grow, they need to be nurtured. I think I am saying this for the umpteenth time, but it does not harm for me to repeat, investing is a long game, a marathon not a sprint. So, it would be wrong to invest with the sole aim of getting rich quickly as it makes it easy for you to be conned.
3. To invest you need a lot of money
Investing is not a one size fit, but the barrier to entry in conventional investment vehicles has been reduced to enable as many people as can to start investing. For instance, at the Nairobi Securities Exchange (NSE), the minimum amount of shares you can buy is 100. For instance, if the stock you want to buy costs 10 bob a share then with Kshs.1,000(USD 10).
You would only require Kshs. 50,000 (USD 500) to start investing in Government Bonds. Pension plans accept as low as 20bob a day. Government Health Insurance (NHIF) allows for a minimum payment of Kshs.500 (Kshs 6000 p.a).
Money market funds will take as little as Kshs.500 as an initial investment.
I could go on and on but the point is you do not need to sell your kidney to start investing.
4. Investing is only for the rich folk
The rich use investments as the means to get riches, grow them and preserve their wealth. It then follows that for ordinary folks to become rich, these are the same vehicles they need to use to create their wealth.
So, I would encourage you to stop being intimidated instead get all the information you can on an investment you are interested in. when you are convinced of what you are getting in, go in. Don’t be caught in analysis paralysis. Get just enough information to start and then learn some more as you go along.
5. Investing is complicated
My rule of thumb when investing is, if I can’t explain in simple terms such that a 5-year-old child can understand how I earn, then I probably don’t understand that investment, and I should not be putting any of my money there.
Investing is simple, but it is not easy. It takes discipline and dedication to see results. Most people don’t like to be bothered with the long-term nature of investing. For example, they want to start investing in the stock exchange and have their shares triple in price every other month. Wouldn’t that be something, though!
Anywhoo, if an investment sounds complicated please run, fast, in the opposite direction of course.
6. Don’t diversify, invest in one thing, and one thing only
When you are starting as an investor, you need to test out what is in the market and find what works for you. It would be advisable to check out as many investment avenues as you can, within reason.
After you find that you are comfortable with a couple, focus your energies on those and leave the rest.There is wisdom in diversification because you do not want to wake up one day and find the stock that you invested everything it has had its price tumble to oblivion.
7. You don’t need financial education
This is a myth especially to those who consider themselves to be a bit advanced as investors. Nothing could be further from the truth. We become better by seeking out learning opportunities. Learning is important because of the changing nature of the financial sector and the world generally, and it pays to understand the new developments as well as the opportunities in the future. Don’t stop learning, because the minute you arrive, you stop growing.
8. You can put off investing provided you invest more in the future
Of all the myths I have talked about, I find this to be the most misleading and disempowering of all. People will procrastinate investing in the younger years, because they are partying and eating all that life has to offer, only to discover later that even if they triple the investment amounts in their late 30s that they would have put away in the early 20s, they will never catch up. The magic of compound interest is real. Start early, start small and be consistent.
9. You need to hire a financial expert to start investing
Do not get me wrong, there is nothing wrong with hiring a financial expert to help you accomplish your financial plans, being an expert, I fully advocate for this when you need to leapfrog your growth pace in the medium and long term. But in the beginning, I recommend you try to learn the ropes, even if you are convinced you will hire the services of an expert to handhold you.
Investing is not elitist, everybody should invest. To uplift or maintain their standard of living as well as to have investments that will provide for them when they are no longer able to work.
Whatever your investment avenue, do what works for you and do it to the fullest,
I am rooting for you over here!!