Investment 101

In a previous article 7 cures for a lean purse was a map to wealth. Cure 3 says to multiply thy gold. But how? The answer is invest, invest, invest. So said the Chinese: if you have two loaves of bread sell one and with the monies buy hyacinths for your soul.

Most saving people go to work and have little or no room for side business. A nice way to save and accrue interests at the same time is the money market fund. A money market fund is generally a savings account that earns a much higher interest than a conventional bank account.

With Kenyan Banks offering savings accounts with 2% interest growing your money shall remain a pipe dream. Money market funds on the other side fetch interests as high as 21% believe or not. I even fantasized of getting a humongous loan at 16% from the idiotic banks and saving it in a money market fund at 21%. The logic for that fantasy is this. Assuming banks will nowadays beat a path to your door to offer you a loan on the slightest indication that you have a stable job, show up at a bank and order them to give you a loan.

Let’s pretend they have handed you Kshs. 2 milli at 16% interest p.a. At the end of the repayment period you should pretend to hand back Ksh. 2,320,000. If you immediately throw this cash into a money market fund that accrues interest at 21% p.a you will get an interest of 100k + each year assuming the interest is compund. The only backlash is if you must start repaying the loan back immediately.

Disclaimer: If you follow advice from this post and you end up in jail or loose property, it shall be at your own peril and I shall not accept liability for any damage caused. However if it works out share the knowledge and also feel to invite me to the after party.

The next question at this point might be where to get money market funds in Kenya and which is the best. When I first stumbled on money market funds I only knew one, and it was offering an interest of 6.5% p.a. then. At the moment of writing this post I had discovered over 20 and they all offer different products so it’s up to you to launch an inquiry into the most suitable. Below is a list from a respectable local newspaper dated Wednesday February 1, 2012.Given today is Friday February 3,2012 the information is up to date so it’s a good point to begin. You can also download the complete pdf file.

UNIT TRUSTS                                      DAILY YIELD                    EFFECTIVE ANNUAL RATE

Africa Alliance Kenya Shilling Fund                       11.85%                                             12.5%

Old Mutual Money Market Fund                            12.17%                                            12.87%

British-American Money Market fund                   12.45%                                             13.26%
 
Stanbic Money market Fund                                 12.75%                                            13.52%

CBA Market Fund                                                   11.69%                                             12.40%

CIC Money Market Fund                                        15.83%                                             17.03%

Amana Money Market Fund                                    21.09%                                              22.5%

Suntra Money market Fund                                  11.48%                                            12.17%

Zimele Money Market Fund                                    9.0%                                                9.31%

ICEA Money Market Fund                                     10.96%                                             11.58%


A few advantages of this investment vehicle are that you can always withdraw your money, keep up with progress online and generate e-statements. It also has a guarantee unlike the stock markets where stocks fluctuate wildly.

Stocks are also affected by non-issues and may plummet to hell just because a board member of the company was allegedly spotted breezing into Motel Kabu Kabu with a string of kele keles in his wake.

7 cures for a lean purse

Time and again we hear Bruno Mars on radio wallowing or stumble on him goofing off on TV. However, he brings out an important wish; to become wealthy. The rules for acquiring, retaining and building wealth are simple, universal and unchanging.

The fun part is there is no prerequisite and believe or not it’s not a secret. But then again we’ve read lots of tales in fat tomes about getting rich. The truth is always simple. Following are the seven remedies for your broke ass.

cure 1: start thy purse to fattening

A part of what you earn is yours to keep. It’s recommended to save AT LEAST a tenth of whatever you earn. Thy purse will start to fatten at once and its increasing weight will feel good in thy hand and bring satisfaction to thy soul.

cure 2: control thy expenditures

A budget is a good place to start. One may write down all their expenses then mark those that are necessary and additional ones that are possible on the remaining 9/10 of earnings and forget the rest. A strange truth is that expenses will always grow to equal your earning unless you make an effort to prevent that from happening, the so called hedonic treadmill.

cure 3: make thy gold multiply

Now that your purse is fattening and you have nipped your expenses in the bud you might continue saving forever with no end in sight. I mean, what do you earn you miserable peasant? Who are you? Okay let’s continue. Identify a profitable investment that will guarantee returns and then keep ploughing back profits. You will soon find out the power of compounding.

cure 4: guard thy treasures from loss

Once in a while there will be temptations to invest heavily in plausible projects. The road to hell is paved with good intentions. The first instinct should always be security for your capital. Is it redeemable from this so called perfect opportunity and if so will it rake in reasonable dividends? Here is where you seek EXPERT ADVICE. It is usually free. Don’t ask your barber about treasury bonds because they know zilch about it.

cure 5: make of thy dwelling a profitable investment

Chances are that you don’t own the house you live in while this is a perfect opportunity for enterprise. By the time you arrive at this step it may be quite easy to borrow a loan to construct/buy your own house since you can demonstrate a clean bill of financial health.

The logic for borrowing for construction is that now you can repay loans with rent money (which you would have paid anyway) and the debt reduces after each installment leaving you with valuable property at the end of it all. Hope you don’t live near an airport.

cure 6: insure a future income

You will undoubtedly grow old but still need comfort. Since old tongues love to wag, let’s hope you will have something to wag about. Many ways exist such as owning properties to pension schemes whatever works for you.

cure 7: increase thy ability to earn

Finally you must cultivate your power to acquire skills, knowledge and wisdom to remain relevant and get rewarded richly in whatever it is you do.

Its time I started writing this blog from a rustic villa atop white sands with an excellent view of the blue ocean. Having smelt the cheese, I’m sure you want a bite. Here’s the whole of it: The Richest Man in Babylon

Funding for your business ideas

Starting a business is often a challenge for most people. At a recent conference where several startups were presenting their ideas to a remarkable panel in order to obtain funding, the following concepts came out clearly. First you have to come up with a feasible idea which must seem to be profitable. Next is the mountain that drives everybody crazy; capital. Finally you have to implement your idea since it will not materialize by itself. Just like starting a fire you might have lots of fuel and be full of air but you still need a flame to have a blast.

But before setting foot into the murky waters you must find out who your customers or target audience is. Collect all the statistics you can on your market since it’s always good to have the numbers on your fingers especially when making a presentation or a pitch to potential investors. Again there is always the issue of how your target customers will know of your product or service. Several marketing methods came out such as using social media e.g. Facebook or Twitter, face-to-face contact, posters, newspapers or even spamming (Sending information or URL links for your site to all the email addresses you can lay your hands on). The last method may irk some people but they will get the message anyway.

Another issue is how you will launch your product/service. Some products may be free during the pilot period followed by subscription if the initial customers liked what you had to offer. For example a dating site may let potentials send each other gifts and flirts before hitting them with a subscription fee once the “love ” starts running deep. On the same breath you must know how your business is going to rake in money. Some of the revenue streams out there include premium SMS messages, recruitment/joining fees and transaction fees especially for online businesses.

A business may also decide to advertise on their site with advertisers paying for their listings either per month or CPC (cost per click) i.e. they pay for every click on their advertisement. One fact that came out strongly was that a good business adds value i.e. customers should enjoy a new service that wasn’t there and is worth their money or the service was already there but it has added or unique features that drive customers to choose yours over others.

If your business relies on software you must check whether the software already exists and justify why building your own is better than buying say COTS (Commercial off the shelf software). Customization of other software especially Open Source software (Software that has a free License and can be altered and redistributed without copyright constraints) is also another option here. Assuming you are pitching your business you must give sufficient reasons that demonstrate your need for funding i.e. expansion to new markets, marketing, creating new products/services etc.

Finally, you must have exit strategies handy. An exit strategy is simply what you intend to do with your company once it becomes too large and powerful for a few individuals or when you encounter unfavorable conditions. Strategies include acquisition by new players, listing on the stock exchange or you can refuse with it until you die. In reality many startups don’t make it that far and it’s always good to “see” the progress of your business a number of years into the future especially if your main business activity ceases to be profitable. This ensures sustainability. Also getting your idea out there is always a good thing since you may get new perspectives and improve the idea or even catch the attention of an angel investor. Some people might argue that their idea may be stolen and choose to develop in stealth mode but the truth is for every idea you conceive there are hundreds of other people toying around with something similar.