INVESTING 101: A Beginner’s Guide

Every saver can become an investor!

If there is anything that 2020 has taught us, its that those who rely on a salary are just a paycheck away from being poor. A few hundreds of thousands of shillings sitting idle in the bank? it may not be enough that your money is only safe, because there are ways for your money to be both safe and accumulative.

Raphael Kutosi, the Head of MBK Consulting is giving us a closer look on investing and how to go about it for beginners.

This is your chance to drag yourself out of financial confinement to financial liberty with these pro tips.

What is investing

Investing is a way to potentially increase the amount of money you have. The goal is to buy financial products also called investments or saleable assets and hopefully sell them at a higher price than what you initially paid.

How does it really work?

An investment is essentially an asset that is created with the intention of allowing money to grow. One, if you invest in a saleable asset, you may earn income by way of profit. Second, if Investment is made in a return generating plan, then you will earn an income via accumulation of gains.

When you invest, youre giving your money the chance to work for you and your future goals. Its more complicated than direct depositing your paycheck into a savings account, but every saver can become an investor.

What are the different ways to invest and as a starter which ones do you advise me to consider?

Before making any investment, its important for new investors to know what their tolerance is for risk. Certain investments carry more risk than others and you dont want to be surprised after youve made the investment. Think about how long you can do without the money youll be investing and whether youre comfortable not accessing it for a few years or longer.

Best investments for beginners

a) Individual stocks

Buying stocks in individual companies is the riskiest investment option discussed here, but it can also be one of the most rewarding. But before you start making trades, you should consider whether buying a stock makes sense for you. Ask yourself if you are investing for the long-term, which generally means at least five years, and whether you understand the business you are investing in. Stocks are priced every second of the trading day and because of that, people often get drawn into the short-term trading mentality when they own individual stocks.

b) Owning Your Own Business

You can use your money to invest in your own business, which has the potential to produce the highest returns of all your investment choices. It can also fail and cost you a lot of money and sorrow. However, your businesses can produce a steady income and grow over time.

Some businesses have very low startup and ongoing costs. These include virtual or online businesses, like teaching, consulting, coaching, and IT support.
One way to approach this is to only put part of your money into a business and invest the rest elsewhere. This approach can save you some sleepless nights.

Another approach is to create a part-time business, something you can do in the evenings and weekends. That way you dont have to give up the security of your regular job, and you will be making extra money.

c) Equity Crowdfunding

If you dont want to own your own business, you may want to consider owning part of someone elses. Startup companies that need money can offer shares of their companies on equity crowdfunding websites.

If you invest in a company over an equity crowdfunding site, you own part of it and will be rewarded if the company succeeds. The risk is that if the company fails, you lose part or all your money.

d) High-yield savings accounts

This can be one of the simplest ways to boost the return on your money above what youre earning in a typical checking account. High-yield savings accounts, which are often opened through an online bank, tend to pay higher interest on average than standard savings accounts while still giving customers regular access to their money.

This can be a great place to park money youre saving for a purchase in the next couple years or just holding in case of an emergency.

How can these avenues be accessed?

Its one thing to be able to identify industries and businesses that are poised for major market success. But entrepreneurship requires more than just finding an idea that can make a lot of money. For entrepreneurs to tap into the motivating power that drives lasting success, the ideas they conceive must be powerful enough to change the world through major economic, social or environmental impact.

Find opportunities in your own community.
Draw upon your own personal experiences.
Look for ideas that get other people involved.
Go out of your way to ask others how you can help.

With a lot of investment scams, how do we know who to invest with and not.

Point to always note, Be suspicious of anyone that offers you easy money. Scammers are skilled at convincing you that the investment is real, the returns are high and the risks are low. But there’s always a catch.

Be wary when you encounter an investment opportunity that claims to guarantee or protect your capital while promising high returns. Many investment scams offer such lucrative promises in order to lure investors in.
It is important to check how the investment scheme can generate such high profits with low or no risk. Benchmark the returns – find out what other investments offer the same returns and see what the risks are like. It is unlikely that the investment you are being offered can provide the same returns without the same risks at least.

After how long should one expect to see results

The first step to investment is to create a plan. Work out distinct investment goals; identify their timelines. Scout avenues that can help you achieve these goals. Ensure you undertake adequate research before investing.
To invest well, you need to find investments that fit your financial goals and investing time frame
Get an overview of the different types of investments so you can find the right ones to reach your financial goals.

What risks should I prepared for in investing

While investments can be profitable, they are also associated with risks. You could lose all or part of your initial investment.
If you are aware of the risks associated with investments, you will be in a better position to decide which risks you are willing and able to run. Most investors have heard of price risk, market risk, concentration risk and credit risk, but there are some other risks that you need to be aware of too. For example, currency risk, liquidity risk, political risk and reinvestment risk to name just a few.
Knowing these risks keeps you prepared and alert when gearing into investment.

What books/blogs can an interested person look through for more information

The Intelligent Investor by Benjamin Graham
The Most Important Thing by Howard Marks.
Rich Dad Poor Dad by Robert Kiyosaki and Sharon Lechter, this one in particular being a popular people favorite.

Is there a way to monitor my finances and probably get out if I change my mind?

There are some tried-and-tested ways to feel in control of your money.

1) Budget, budget, budget.
The easiest way to get your finances on track is to make a detailed, realistic budget that you can stick to.

2) Create an emergency fund.
Another effective way to reduce financial stress is to start building an emergency fund to cover unexpected expenses. If you are struggling with debt, and not earning enough to put money aside, building up a huge fund might seem unrealistic. But putting aside 100,000ugx a month will quickly add up to a useful nest egg. Should any unexpected costs come up such as a vehicle repair or a last minute trip to visit family you will have the money to meet them.

3) Track your progress.

Steps for Tracking Your Monthly Expenses
1. Check your account statements.
2. Categorize your expenses.
3. Use a budgeting or expense-tracking app.
4. Explore other expense trackers.
5. Identify room for change where you notice a gap.