How to align your investment goals with the money that you have

“Which is the best investment to make money from and get rich?” This is one of the most common questions that this platform gets. By any means, this question is not so farfetched. Many of us believe that there is that one investment out there that could catapult our small finances into wealth. But is there? And if there is such an investment, how long would it take to make returns?

Understand the goal and process

According to Waithaka Gatumia, the chief executive officer at Centonomy, when looking to make an investment, most people mistake the goal with the process. “We all think that there’s that one investment that if I latch on to it, it will multiply and make me wealthy. But the reality is that hacking investments is more about the process than the investment itself,” he said during a webinar on aligning investments with financial goals. 

“If you understand the process, you will then be better positioned to select the investment that will align with your money goals.”

However, following the process and investing responsibly does not mean that you start sacrificing profits or taking additional ones. 

Create an investment intent

“It may mean that you will sacrifice some of your short term gains for longer term value and positive impact,” says financial and leadership strategist Francois Botha. The best way to do this is by creating an investment intent. “This will not only provide direction for your money from an operational point of view but will also ensure that there is also a solid frame of reference when exploring investment opportunities and finding the right fit,” he says. 

For example, in 2012, Gatumia invested in the stock market together with his wife. “By 2015, we got a 50 per cent return on the investments we had made in the stock market,” he said. “That return does not happen every year consistently. What happens and what we have been trying to do is to invest consistently, so that over the years, we get an average high return.” Gatumia added that after the 2015 big gain, they lost 4 per cent value in 2016. “But when you average the rate of return that was coming, we averaged 20 per cent returns per year,” he said.

Understand the why

For example, if you are looking to invest in a house or land, Terry Odeny, the sales director at Olympia Gold Real Estate, says that you must be clear on why you want to spend your money on a house or land. Why is investing in a house or land better than a government bond? 

“You have to be very specific and clear on what you want. Do you want an apartment or do you want land? Which area do you want to buy? What is the purpose of buying it? What do you want to do with this land?” she says. 

If the investment is based on an ongoing fad, drop it. “We get a lot of people who come and say they went to a place like Ngong and found very nice plots that are on sale and they look like a nice deal. So they get their Sh2 million savings off their proper investment plan (such as a money market fund or Sacco) and put it into this deal,” she said. 

“This type of investing will leave you without cash flow. You will be broke, because instead of putting your money into a high return investment that could give you equity to reinvest, you dumped your money in land because it seemed like a good deal,” she said. If your Sh2 million was earning you a 12 per cent return in a government security, a parcel of land in a far flung area without water or even access roads may take years before it can match the returns you have forfeited.

Measurable goal  

Terry recommends that you should instead start by first identifying a measurable goal and how you can monetise the investment in it for consistent cash flow. She says that you may resolve as follows: “My partner and I have resolved to own an apartment in Nairobi. Since we can’t afford a luxurious apartment, we shall focus on the middle to upper class category. We are looking to get rent returns of between Sh40,000 to Sh70,000 per month.” According to Terry, this will give you good cash flow or play a major part in reducing your mortgage even as your investment appreciates in value. 

Also, if you’d want to invest a lump sum, it is important to understand how the item you want to invest in is doing in the market. “For example, if you have Sh5 million, don’t just rush and invest in an apartment simply because everyone says apartments are a good investment,” she says. 

Avoid pressure or fear

According to Elizaphan Mouko, the Country Director and East Africa Business Head at Flutterwave Inc, a Pan-African payment technology firm providing payment solutions to global companies with customers in Africa, this type of investing is mainly driven by financial fear or pressure. He says that when it comes to money decisions, fear and pressure is the barrier that will stop you from following the due diligence process. “A while back, I invested in a business venture because my friend thought it would be the next big thing in town. The venture backfired and I ended up losing all the investment,” he says.

The rule of the thumb for you should be investments that run for a minimum of five years. “If you have a lump sum and you want a fund manager to invest for three months, it is likely that the manager will look for the lowest returns,” Elizabeth Irungu, the ICEA Lion Asset Management’s general manager for business development said during the webinar. 

“This means that if you want to make some money to own a house, the manager will not be looking at your end goal of owning a house, but the end goal of giving you back your money in three months.” 

The process of investing shouldn’t stop at five years when you have already achieved your goal. You will need to revisit your goal and evaluate how it measures to your current needs. [email protected]

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