Tips for First Time Investors

“We simply attempt to be fearful when others are greedy and to be greedy only when others are fearful.” – Warren Buffet.

The first step to building up your investments can be daunting. There are a lot of things you need to put into consideration in order to achieve optimum growth and stability in your financial life.  But where do you start? How do you know where to put your money and how? How much will you lose if the markets start performing poorly?

To help you pick your way through the investment maze, here are some simple tips.

  1. Consider Your Passions And Your Personality:

It is wise to invest in an area of business you are familiar and passionate about so that you can put your enthusiasm and knowledge to good use. Investing in an area you are passionate about makes hard times more bearable.

Your personality type should also influence your investment decisions. If you are a risk-averse person, for example, consider funds that have stable returns like the Zimele Savings Plan. If you can manage some risk in your investment, then you should consider investments that incorporate stocks, like the Zimele Balanced Fund.

  1. Know Your Time Scale

Time affects money. Concepts such as inflation, interest rates, and compound interest affect the value of your money over time. It is therefore important to save for a goal that has a timescale. This will guide you to the investment that suits you best.

For example, if you are saving for retirement and have 25 years to go, you can afford to opt for a riskier fund like the Zimele Personal Pension Fund where funds are invested in shares with greater long-term growth potential.

  1. Take A Long Term View

We have noted that your understanding of time and how it influences your goals can help you chose the right investment vehicle. The one thing you need to know is that for almost all good investment vehicles, the longer you invest the more you will accumulate. This is especially the case if there is compounding of interest or if you have invested in the stock market.

The stock market is always a roller coaster ride. If you are not prepared to lose any money, then shares may not be the right investment for you. However, when considering the long term, you are likely to do better in shares compared to most investments.

  1. Invest In What You Understand

Make sure you understand the investment you choose, so check what it invests in and how. If you do not understand anything then ask, and if you do not get a satisfactory answer, do not invest. Even the legendary investor Warren Buffet said, “never invest in a business you don’t understand.”

  1. Do not Follow Trends

Following short-term trends and fads has often led many people to select the wrong investment at the wrong time, and is equivalent to speculation. Take your time when deciding where to put your money.

When you follow trends, the best case scenario is that you will get lucky, and then keep doing it until your luck runs out. The worst case scenario is that you get stuck jumping in late or investing in the wrong assets time and time again before you give up on investing or lose your hard earned money altogether.

Rather than following rumours, the ideal first investments should be in companies, ventures or securities you understand or are familiar with. When it comes to financial investments, always ensure that you invest in securities listed at the Nairobi Securities Exchange (NSE), which include shares of companies, corporate bonds, and government bonds.

  1. Spread Your Investments

Diversifying your investment is very very important. Never put all your eggs in one basket. It is a cliché, yes, but there is a lot of wisdom in it. Most investments are risky and if you are looking to put all your money in one investment, Buffet would probably ask you why you want to test the depth of the river with both your feet.

Strike a balance within your investments such that you have a portfolio with both the short term and long term investments. If you don’t have the time or expertise to properly diversify your investments, put your money in a Unit Trust.

  1. Do Not Jump Head First

It takes money to earn and build up your money to invest. Take your time before making an investment decision. Money tends to be lost more easily than it was earned. Before committing, gather all the information you need and study your options. Consider all this information before making a decision.

But don’t use this as an excuse to procrastinate. All we are saying is never jump head first.

The Bottom Line

When you are starting to invest, it is advisable to start small and understand your risk tolerance. As your income and experience continue to grow, you can start making bigger investments relative to your risk appetite. Investments are not bad in and of themselves, but the absence of knowledge and information can lead to substantial losses. The good news is that you can avoid these mistakes. Come and talk to us for more information.

  Ecobank towers, 7th floor, Muindi Mbingu street  |    info@zimele.net  |   0733-111106  |       @ZimeleAM

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