Why you need to weigh up personal investment options
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Whereas there are several considerations in deciding where to invest, a major factor is the objective. Your objective for investing determines where you put your hard-earned money.
The overriding factor is however to obtain a decent return on your investments.
If the objective is savings to access credit, then the best option is to join a savings and credit co-operative society (SACCO). However, SACCO’s are restrictive on membership and thus majority are left with no option but to save with banks and micro finance institutions with a hope of getting credit in future.
Again in some cases the credit obtained may need to be invested with the purpose of obtaining a return.
In securing future foreseen expenditures, insurance provides the best option. There are a number of savings products issued by insurance companies like education policies where you pay a certain premium to the insurance company to build enough capital for future school fees obligations.
Insurance companies also issue pension or retirement saving policies which are ultimately paid out inform of regular annuities or lump sum maturities.
The Rwanda Stock Exchange provides investors with an opportunity to part own blue chip local and regional companies that are listed at the exchange. Buying of shares enables an investor to own part of a listed company and benefit from its business without being burdened with overseeing its management.
The returns are primarily cash dividends periodically paid out to shareholders, market appreciation in the value of shares held and bonus shares when issued. All factors put constant, it is one of the best long term investment options as historically such investments outperform inflation in the long term.
You must however remain in the investment for a long time to be able to benefit.
Unit trusts are a new entrant to the investing market in Rwanda. Currently, the National Investment Trust (NIT) provides an avenue for individuals to invest in assets that ordinarily they would not access on their own.
Broadly, unit trust trusts are pools of well diversified set of investments where participants are allocated units or shares corresponding to their participation in the pool. Common narratives used to describe such products include Fixed Income, Balanced, Equity and Real Estate Investment Trusts (REIT).
The major advantage with unit trusts is the ability by retail investors to invest in various assets with minimal capital while realising optimal return on such investments. Another major advantage is liquidity. Such investments can easily be converted to cash should one opt out of the investment.
Government of Rwanda Treasury Bonds and Bills are probably the most secure investment one can opt for. The Government occasionally invites bids from the public to lend it money.
In return, the Government pays the investor interest on the money loaned to it at an agreed rate which the Government discloses at the time of borrowing. Interest rates vary from issue to issue.
Loans to the Government of less than one year are called Treasury Bills while those over one year are known as Treasury Bonds. However, given the administrative challenges of administering loan books, the Government has fixed the minimum levels of participation thereby locking out most retail investors.
The Treasury Bonds are traded at Rwanda Stock Exchange which means that an investor can sell or buy from the market at any time.
Owning a property is everyone’s investment dream. An important consideration in whether to invest in commercial or residential market. However, property require huge capital outlay and majority may not afford this valuable asset.
The risks and returns various depending on type and location but the investment is typical long term in nature with low liquidity meaning that it may be difficult to easily convert the investment into cash should need arise.
A number of commercial banks operate forex deposit accounts. However, the accounts do not attract interest in Rwanda. A forex account is an account domiciled locally but designated in foreign currency with the notable currencies being US$ and Euro.
The advantage with this investment is that they provide a hedge against exchange losses. Experience has shown that in the long term the Rwandan Franc will always depreciate against hard currencies.
Return is derived through exchange gain on conversion. It is however not advisable to hold forex account for short term gain as you can lose in the short term due to currency fluctuations. Again, you require substantial amounts to invest in forex accounts.
In all cases, no single asset class can guarantee the objective of decent return at minimal risk as risks are inevitable part of any investment. The cardinal rule of the higher the risk the higher the return applies to all investments.
It is therefore important to mitigate risk by diversifying and obtaining professional advice before undertaking any investment.
The writer is a Pension and Investment Consultant,
The views expressed in this article are of the author and do not necessarily represent those of The New Times.