During the on-going public education programme being conducted by the Capital Market Advisory Council (CMAC), one of the most frequently asked questions from the audiences has been, "How do we make money and grow our wealth with little or no savings at all?" Robert Mathu explains.
Well, the reality about creating wealth is that one must have saved over time. The more times you save the little you can afford, the faster you accumulate and grow your investments. Savings can be and should be grown over time. Your frequency of savings is the most important in the beginning as it helps you to build confidence in accumulating resources for investment. For those who have already been saving, it is time to start diversifying into the capital market as a way of growing your wealth further.
Savings could be the only known legal and sustainable source of investment and therefore wealth for individuals, households, institutions and even governments. Look at the wealth you see around you. All the cash in banks, personal properties like agricultural farms, private and commercial buildings belonging to pension funds and insurance companies, the local and central government, private transport vehicles etc. They are all created using savings. Cash remittances from the diaspora are also savings by citizens overseas. Don’t forget that funds from foreign direct investments are also savings by individual citizens in other communities.
Savings is a way of life and when you adopt the practice of keeping aside a small part of your funds, it becomes an important part of our culture. When you keep saving every time you get an opportunity, you accumulate wealth irrespective of size. Remember that you must save every time an opportunity arises and in most cases you must take the initiative to create the opportunity to save. Do this by making it a habit to always save a small part of your income. Check out your consumption habits and your lifestyle! Opportunities for one to save are plenty. It is just a matter of picking up the good habit and sticking by it.
The capital market has become one of the easiest and most effective places to keep you invested while accumulating your savings. As a new market in Rwanda, many of us may think that it is complicated and only for the sophisticated investors.
The capital market is a public market and your market. It is a market where people meet to buy or sell capital or investment products. It is a market like any other market just as we have; vegetable markets, cattle markets, housing markets, fish markets, cloths markets, car markets, oil markets and now capital market. The main goods of the capital market include bonds or debt instruments and shares issued by public companies. When you buy a debt it means you are lending money and like any other lender you must charge a fee for it. When you buy shares in a public company, you actually become part owner of the company. You have saved in expectation of participating in the distribution of profits when the company decides to dividends. When you buy a bond issued by the Government through the central bank in this case, Nationa Bank of Rwanda (BNR), you are actually lending your savings to the Government and for this you are promised an income on your savings. At the end of the period of your lending, you will get back all your money in addition to the interest income that you will have been earning say every six months.
Just look out for the next bond and compare the interest rate it will offer with what your savings account at your bank is offering you at present. Now you have an option to consider a better return or higher earnings for your investment. Please review your budget and decide what you want to lock away for some time. Don’t put your kitchen budget or money you will need to spend soon, in the capital market
When you buy a bond when it is being issued for the first time by BNR, or a public company it is said you are buying in the primary market. Once you become a bond-holder and for any reason you wish to get back your money, you will have to look for a buyer of your bond. You then have to visit the capital market where they are traded. When a second person buys the bond from you, he or she is said to buy the bond in the secondary market. This difference between the primary market and the secondary market is important. The presence of a secondary market guarantees you a buyer whenever you wish to sell.
How you invest also determines how you get along with your savings plan. Just like swimming, you can only learn by jumping into the water. As a starter, remember you are beginning a process of accumulation of savings. Get into the habit of buying bonds in the primary market either directly or through your bank or stock broker. The offer document also called a prospectus is always published in the media and also the BNR website. Some free advice from your banker or stockbroker will make your understanding of the capital market better. There is no shortcut to creating wealth. It is only through continuous savings and investment.
The wealth accumulation path begins with the first step. The first step should be knowledge. Get to know what goes on. Then find out what is on offer. Then go for what is good for a rational investor like you. Finally, start accumulating your savings to enable you invest and keep the habit. Remember, when you postpone your consumption by saving through an investment product, you actually grow your wealth.
Robert Mathu is the executive Director Capital Market Advisory