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I have Sh50,000, how best can I invest it?

Question: I have Sh50,000 to invest, where would you advise me to put the money? On my list are government bonds, a Sacco, a fixed deposit account or a mitumba business.

Answer: Dear reader, thank you for your question. You did not indicate your age and family circumstances, which are important considerations when providing financial advice.

They are important because they provide pointers to constraints that should be considered when choosing an investment option. You have also not indicated whether the Sh50,000 will be available for a short or a long period of time, I have therefore taken the assumption that this fund is available one off.

The decision you seek is complex. On one side you have listed straight forward savings and investment options which are easy to compare against each other. On the other, you have asked for choice between these savings and investments against a mitumba business, which has a different risk profile.

A government bond will pay you interest every six months at half the stated interest rate. For example, if the bond interest rate (coupon rate) is 10 percent, you will receive 5 percent every six months. This translates into Sh2,500 every six months on a Sh50,000 bond. Its rate of return depends on the term of the bond and is a key factor when choosing between bonds. Long tenure bonds carry higher interest rates as well as higher risks of returns variability.

Your choice to invest in a bond would be informed by the amount of time you are willing to wait before you require the funds. Where you require them in less than a year, it is advisable to consider a treasury bill as the choice investment instrument. Treasury bills mature in three, six months and one year (364 days) respectively.

A bank fixed deposit pays interest linked to the period of maturity, but which is generally lower compared to a bond because they have shorter maturities. Fixed deposits pay simple interest rates calculated on the outstanding balance at the end of the investment period.

For example, if the Sh50,000 is fixed for a six months’ period, at, say, 8 percent, you will earn Sh2,500 at the end of six months. If you choose to fix it again for another period of six months, it will be done at the prevailing market rates at that time, which could be higher or lower than 8 percent.


A Sacco offers you an opportunity to earn interest on your savings at the end of each year as well as an opportunity to borrow against your savings at lower than bank interest rates. Where you need to borrow, a Sacco offers the best opportunity compared to a bank deposit and a bond. You get back some of the interest you pay on your loan as a rebate on your savings at the end of the year because you are both an investor and a borrower. Interest rates paid by a Sacco, bank deposit and a bond range between 6 percent to 12 percent per annum.

Investing in a business cannot be compared to putting your money in a Sacco, bank deposit or a bond because it requires extra understanding of the market – demand and supply for the second-hand clothes, which presents a higher risk factor. Putting money in a bank and a bond comes with guaranteed returns, which is not the case for a business. Investing in a mitumba or indeed any other business needs additional skills for selecting and selling goods profitably, while not promising any or guaranteed returns.


How can I tell that an investment idea is a scam?

Answer: A scam is a dishonest scheme usually designed by people who intend to fleece your life savings through non-existent investments schemes. It is fraudulent and intended to trick people into putting money into an opaque plan, which is also distributed under cover. Unlike when you make an investment in publicly available assets, you either don’t receive back an authentic document that is proof of ownership of the assets you have bought or many times, there is a deliberate intention to hide information on what exactly you are buying into.

Information on the investments you purchase should be publicly available and verifiable. For example, the capital markets authority has approved Stockbrokers and their agents, who are listed in their website. Usually, when you make such an investment, you receive a document that is a proof of ownership of the assets you have bought. For example, when you make a purchase of treasury bills or government bonds, you receive a document issued by Central Bank of Kenya showing the amount you have invested and when you will get the funds.

Equally, when you invest in the stock exchange, you do so through an approved broker. You bank the money for purchase of said shares in their bank account and then take the receipt to the broker’s office and get a receipt.

 The way the information on scam schemes is shared is usually through people who are close to you, who can influence your choices through your emotions rather than through a demonstration of suitability of the investment.

Another common characteristic of a scam is the promise of unusually high returns in very short time periods which tend to appeal to people with low understanding of how investments work. As a benchmark, it is a good practice not to expect more than five to 10 percent returns higher than typical government bonds for a similar proposed period. Be wary of investments that promise rates above that margin.

To avoid falling into such traps, make a habit of cross checking any investment information shared by calling investment professionals known to you, or even your banker. You can also consult government regulators in the related areas. If it’s a Sacco in question, you may call Sacco Societies Regulatory Authority. For investments touching on capital raising activities, call the Capital Markets Authority, which approves such activities.

Mr Wameyo is a financial literacy and entrepreneurship coach at Financial Academy & Technologies. [email protected]


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