We all know that we should be investing, but it can feel pretty intimidating to get started if you’ve never done it before. And it doesn’t help that there is a lot of misinformation, lots of misconceptions and just plain lies out there on what you need to start investing.
But that doesn’t mean you can’t find the right kind of information. You need to dig a little deeper to find the kind of financial advice that helps draw you closer to your dreams. Here are some of the myths to avoid buying into when it comes to investing.
1. It’s too complicated
Investing means putting your hard-earned money on the line in the hopes of making a return. It’s a high-stakes bet, which is why we get anxious about it. However, don’t imagine it’s too complicated for the average person to be smart about it.
Seek out information from online resources, verify everything, and speak to a financial adviser. But make sure whoever is giving you financial advice is also listening to what your needs are, and not just throwing options at you.
2. It’s too time consuming
Investing only consumes your day if it’s your job. For the average investor, if you’re riding on the right information, it shouldn’t take more than a day to get the paperwork you need done. Also, you can make use of third-party service providers to avoid some of the processes involved in various investment vehicles. For instance, instead of going to the Central Bank of Kenya to buy Treasury Bills, you can use your bank. Just make sure the commission you’re charged for the service is reasonable.
3. You’ll lose money
This is only true if you invest without understanding where your money is going. There’s no such thing as quick or easy money so avoid schemes promising this. Try to go into investing with a long-term view.
Take the time to research the investment vehicle you are interested in, where the returns would be coming from and what the risks are.
Know your risk profile to have a better idea of what will work for you, and keep in mind that low-risk options tend to have lower returns. But as with almost everything in life, there will be highs and lows in whatever investment vehicle you choose.
4. You need to start with lots of cash
The more money you’re able to start off with, the more potential for growth you have. However, this doesn’t stop you from starting with smaller sums of cash. For instance, there are good counters at the Nairobi Securities Exchange that you can invest in for under Sh20, 000 by buying the minimum 100 shares. When floated, the m-Akiba bond requires a minimum of just Sh3, 000 and gives you a tax-free return of 10 per cent.
Many investment banks also offer you the option of pooling your funds in a group, allowing you to get into funds that typically require much more cash. Explore your options.
5. Bonds and bills are a sure bet
Few things in life are guaranteed. While loaning cash to the Government through a Treasury Bill is generally considered a safe option because the risk of default is minimum to none, it’s not always the case. Consider the Greece crisis, for instance.
Further, corporate bonds are only safe for as long as the issuer is able to meet its financial obligations. However, an economic downturn or poor investment decisions can lead to the downgrading of an issuer’s credit rating, plummeting the value of their bond.
So keep it in mind that nothing is guaranteed, which means you have to do your research on the capability of a government or corporate entity to make interest payments on time to better secure your cash.
Avoid making assumptions and keep track of your investments so you can spot signs of a potential default early.
6. Your portfolio needs [this] investment
There’s no single investment that’s a must-have. There are many ways to make money, and you can do this through a variety of investments. However, you should be guided by your personal risk profile; don’t allow yourself to be carried away by what ‘everyone’ else is doing. Try to build a diverse portfolio to optimise your returns, but be comfortable with your picks.