Menu
Search
Subscribe
Home Blog Page 17

Should You Invest in a Property with a Friend?

By
Irene Makanga
-
0
Should You Invest in a Property with a Friend

“If you want to go fast, go alone. If you want to go far, go together” – African Proverb.

Should you invest in a property with a friend or go it alone?

One of the most difficult things for people in business is to find a partner/friend that is just as focused as you, trustworthy and dependable. In moments where it makes more financial sense to pool resources and buy property together to live or potentially rent out, just like in any other business, there are potential pitfalls of such a move.

Real Estate is characterized by low liquidity, a lot of work and maintenance and valuation problems.  This can be aggravated by friendships in partner ownership. Sometimes, friendships change with money, spending and losing money. Quite often being in business with partners, who are friends sometimes family, can have bad endings for either the business, the friendship or both.

Potential Pitfalls:

  • Conflicting Interests – Your interests maybe aligned at first, but things change and your partner may later demand to cash out.
  • Liquidity problems – Real estate is difficult to cash out unlike stocks or bonds. Due to this fact, in the event that your partner wants to cash out quick, you may need to sell fast to meet that obligation. Note that a quick sale can lead to possible capital losses for both of you.
  • Passive Investment? I think not, real estate investing can be quite time consuming. Purchasing, managing and maintaining property is hard work and can eat substantial amounts of cash, time and can strenuous on friendships.
  • Cost of Owning – Unforeseen issues can arise with real estate hence, as partners you require substantial reserve to cover the unexpected costs.

At the end of it all, it all boils down to what you want to have: a property or a friend.

How to avoid these pitfalls: 

  • Draw up contract handling these little things or setting-up a limited liability partnership/company (whichever is better for you).
  • Having a financial cushion and other investments.

Advantages of limited liability partnership/company:

  • Allows you to protect the assets in case of bankruptcy
  • Protection against quick sales and unforeseen problems
  • Limits risks when you both take out a loan to purchase more property together
  • You may get tax breaks under this set-up
  • Re-investments can take place easily
  • Peace of mind

It is therefore, imperative to have not only a financial cushion that will avert the potential pitfalls but also a legal framework to address the interest of both partners. Many people think that property investment is very obvious and straight forward route. It is not. There is a lot of work that goes into it and great returns too. Another unexciting route that you may want to consider is investing in a tax efficient investment fund that will provide the growth and income you seek with liquidity, less risk, less cost and less the stress.

You can right-click on the following links to read more real estate investing:

- Advertisement -

What You Need to Know Before Buying Your First Home

By
Irene Makanga
-
0
What you need to know before buying your first home

It is of utmost importance to really understand the financial implications of buying a house to live in, on mortgage, will have on other aspects of your life.

While there are a lot of arguments that state that buying a home on mortgage at a young age is the single biggest mistake one can make, not buying also potentially be the single biggest mistake you can make. Why? Because, buying home increases your probability of wealth accumulation, since you really are not in the wealth building game until you actually own some real estate. Therefore, take some time and crunch some numbers – you don’t have to start big. This way, you will have your own clear goals and you will not later tell yourself that you cannot afford it.

Buying a home is a very tiring and complicated process

A few things you must do:

Buy What You Like

For many, the budget is something that cannot afford you many choices. However, while you are at it, buy a house that you actually like and in the location that you would actually like to live in. As, what you definitely should not and absolutely not compromise on is the quality of life. Therefore, make a list of the things you would like the house to definitely have and things, you would compromise on i.e. size, locality, floor plan, building materials etc. All these things will definitely impact on the cost of the house and also, look out for good bargains.

Mortgage Installment 40% of Income

The debt-to-income ratio is said to be 43%, therefore, 40% is a good allowance for which your monthly instalment should not exceed 40% your total income. While this maybe the rule of thumb for many, you should also consider what you are actually comfortable with i.e. keep your options open by accounting for higher monthly instalments if rates rise or accounting for shorter mortgage terms in the future. Since, mortgage commitments are usually long-term it can be hard to predict what will happen in the interim hence, it is important to keep your commitments lower than 40% of your monthly income.

Opt for Floating Interest Rates

After the interest rate cap, many borrowers have lost out in their fixed mortgage rate loans and hence, have a variable rate on interest which will keep you within the range of competitive rates in the market.

Credit Score & Mortgage Eligibility

Before taking the step to buy a home, check your eligibility with the bank. This depends on your credit score, occupation, income, value of property you would like to acquire and the number of dependants you have. Other things may be considered as well.

Seek Legal Advice

Despite that fact that bringing in a lawyer to this process may cost you a lot more, it will save you a lot in the long run. Make sure you have clean title deeds and the required supporting documents that will protect you against future litigation.

6 Months Emergency Budget (Monthly Installments)

Uncertainty is the only certain thing; therefore it would not hurt to keep some cash in handy to meet your monthly payments when things aren’t looking up. Additionally, take insurance on your loan as you take out your mortgage. This will ensure that in the event of your timely death, the liability is taken care of and your loves too.

A few things to avoid:

  • Do not take a loan for down payment or process fees – personal loans are very costly.
  • Do not stretch your budget too much – The cost of living increases and therefore, stretching your budgeting and committing a great percentage of it to something like this will leave you in a serious conundrum.
  • Do not work with inexperienced professional – spare yourself some drama.
  • Do not let yourself feel the pressure – your making a decision that you’ll have to live with for a long time.
  • Do not forget to provide for furnishing expenses – just put some funds aside for this!
  • Do NOT let it be your ONLY investment – The biggest lesson and the biggest mistake you can make – ensure you home is not your only asset. Build some other investments aside from your home.

Finally, do not fall prey to schemes that look too unrealistic. If a deal is too good to be true – it probably is untrue. Therefore, keep an eye out for the signs such as terms of costs, timelines promised – anything that seems out of place or too perfect.

You can read more on real estate investing by following the links below:

And Good luck!

 

- Advertisement -

Can You Really Afford The Lifestyle You Want?

By
Irene Makanga
-
0
Can You Really Afford The Lifestyle You Want

Live the life you want but getting your financial planning right. 

Most of people hardly know what kind of lifestyle they want. In most cases, they are always chasing new trends if not daydreaming about having the lifestyle other people have. Whatever the trend or dream maybe- that expensive car in the market or a charming house like Jane’s with nice backyard and pool, will you ever be able to afford it?

Modern life is not cheap – we got bills, food, clothes, cars, and mortgages. Those are just the basics – we all still like to go on holidays, have the latest gadgets and enjoy a great social life. All these things cost lots money, which is usually the genesis of the problem. Everything then boils down to basic trade-offs and here are the main ones:

Later over Now

Many of us live beyond our means – borrowing is a serious epidemic in society today that even major service providers are capitalizing on it. The buy now, pay later mindset even leads people to borrow the smallest amounts i.e. airtime, on credit.

Faith over Financial Facts

So can you really afford the lifestyle you want? The answer is, Yes – but you have to be really be smart about it and it just doesn’t take saving and spending less. Let’s be candid, to be able to afford the lifestyle you want, it will require careful financial planning – involving knowing want you want and how to get it. Patience and resilience is something many of us lack to secure our financial footing, hence wind up spending more than we can really afford.

Dipping into debt does not matter too much if it is done occasionally, but if you are living in your debt filled life permanently that you are even borrowing money to pay off old debts and running away from friends that you owe – something has to change.

Suggestions

Here are some thoughts on how you can create the life you want:

(1) See yourself in the manner you want to be – I used to be an avid sportswoman and in sports we use visualization to guide us through training and reduce anxiety during the actual performance – I still use this till today. Bottom-line is, if you cannot visualize it, then you cannot create it. Financial planning requires a lot of it – visualization.

(2) see your glass as half full rather than half empty – adopt a positive mindset and you will be already on your path to making great progress. In order to follow through, financial planning needs an optimistic outlook to see it through.

(3) Adopt a millionaires mind – for different results, do things differently. The idea here is to measure your actions against your vision and see if they are helping you get there or not. Keep in mind that birds born in a cages, think that flying is an illness.

(4) Reaffirm your vision everyday – habits and thoughts can pull us down or even prevent us for actualizing our vision, so you need to stay true to your vision and keep strengthening it every day to keeps it burning.

As for the debt, reassess your standing and be ruthless when cut out everything you neither need nor can afford.

Needs over Wants

Debt to fund your wants is a sure way to wind up seriously broke. Reassess your standing by finding that balance between your needs and wants – but ruthlessly cut out everything you neither need nor can afford. Once you have managed to get your personal finances in order, look for ways to reduce your debt obligations. You can read more on  5 Effective Ways to Get Out of Debt Quickly

It will take a lot of patience and work to get your footing again. Once you do, be careful not to fall back into old habits as we cannot all afford the lifestyle we want while particularly in debt– that is life, simply.

Bottom-line: I know that it is very difficult to deny ourselves the things we really want and even so weigh those desires against debt.  Basing life on what you can really can afford is a tedious task of balancing between trade-offs. Failing to relentlessly question these trade-offs leads to a miserable life in which you really cannot afford the lifestyle you want.

Happy Planning!

- Advertisement -

5 Helpful Ways to Keep your Financial Info Confidential

By
Irene Makanga
-
0
5 Helpful Ways to Keep your Financial Info Confidential

Cybersecurity, why is it so important? Protecting your personal financial information from cybercriminals is imperative. 

Cybersecurity is a growing concern in Kenya and I thought I was safe until I realized that I was hacked too.  My personal information was being taken and I still have no idea what for. Every time I share my personal information particularly when filing tax returns and making online transactions, I have to be extra vigilant too about whom and how I share my information. As we approach the tax return season, I am here to tell you that your highest concern should be the security of your personal information. More specifically, your financial information.

There are four most prevalent types of fraud: identity theft, credit/debit card fraud, tax return fraud and illegal deposit-taking.

KRA runs on two systems, and sometimes the information does not always match. If anything can be learned from the KRA hack, is asking how safe our financial information particularly on our own personal devices.

So just how vulnerable is your financial information? Don’t wait to be surprised, here are some suggestions to protect you against financial fraud.

Don’t share secret information

I find it very surprising, how we have agents to help us with everything – from registering for KRA PINS, filing online returns and recently, I learned, even registering for government documents such as passports. This only means that there is a high demand for such services and an even higher level of vulnerability created as a result. So how safe is your personal information? Banks and other major institutions are always reminding us not to share our personal information.

I cannot stress this enough. Do not share your PIN or password.

Advice on how to secure your financial information:

♠ Memorize and use combination letters for passwords and change them frequently.

♠ Do not share personal information online – on social networks particularly.

♠ If a bank calls you asking for personal information, hang-up and call them back.

♠ Deal with only licensed financial institutions and authorized dealers that respect your privacy.

♠ Be extra careful with investments over the internet.

♠ When making investments, be sure to keep copies of all investment documents and communications.

Keep sensitive documents safe

Criminals are always larking, seeking for ways to gain access to whatever financial information they can get their hands on. Ensure you keep track of your monthly or credit bank statements sent to your mail containing financial information.

Advice on how to secure your financial information:

♠ Shred sensitive papers – receipts and bank statements.

♠ Enroll for online banking to reduce chances of paper statements being stolen.

Monitor your bank account and credit reports

Keeping track of your bank statements credit reports will help detect crimes sooner rather than when it is too late.

Advice on how to keep track of your financial information:

♠ Periodically check your account balance and transactions.

♠ Keep track of your credit every four months (learning your credit score would be a good place to start)

♠ Sign-up for online banking to monitor all account transactions.

♠ Contact bank immediately if your card is lost, stolen or subject to fraudulent use.

♠ If you don’t receive transaction alerts – request your bank to alert you on every single transaction on your account to you.

Protect your computer

Have you ever sat at your computer and witness blatant open day theft by a hacker copying your personal information from your computer?

Well, I did and what’s worse, I know it was a neighbor – so if your reading this, know am onto you.

Advice:

♠ Make sure you have a good virus software on your computer – active and up-to-date.

♠ If using Windows, disengage home group networks or any other networks that may make your vulnerable.

♠ When conducting business online – ensure online safety by making sure your browsers padlock is on or key icon is active.

Protect your mobile and other portable devices

Always use a passcode lock on your smart-phone and other devices – today many of us have bank apps and mpesa, ensure its safe. This will make it more difficult for criminals to access your personal or financial information if your devices are lost or stolen.

I have a friend, who I always thought was over the top super paranoid as he always would immediately destroy his phones after a couple of months of use. Each phone has a new number – new details and email account. Like a new digital identity born every couple of months. He even pays companies to manage all his credit and debit cards.

Now, as a victim of cybercrime – I think his paranoia is justified.

Advice:  

♠ Before you donate, sell or even trade your mobile device, be sure to wipe it using specialized software or using the manufacturers recommended techniques.

♠If stolen or lost, there are software’s that allow you to wipe your device remotely if stolen or lost.

♠ Use caution when downloading apps as they do contain malware.

♠ Avoid using opening links and attachments – especially from unknown senders.

Our personal information is easily linked to our financial information hence, privacy is such a big problem today.

I hope you find these tips helpful.

If you have some you would like to share, please leave them in the comment section below.

Remember, always keep it locked down!

Meanwhile, You can click on the following links to read more about financial planning:

 

- Advertisement -

14 Ways the 2017 National Budget Will Affect Your Finances

By
Irene Makanga
-
0
14 Ways the 2017 National Budget Will Affect Your Finances

Tax hikes on spirits, betting and gaming, and positive changes in the financial sector.

The new National budget 2017 was read on 30th March and with it comes a slew of changes affecting the nation at large. Characterized as a banal budget by some politicians, what can we expect from it in the coming months? Where does the new budget change your day to day spending patterns- this budget, as it turns out seeks to leave more money in your pocket – well, that however totally depends on how much you earn.

Here’s a roundup of the changes likely to affect your pocket book.

(1) More Disposable Income. Taxing the rich is good economics and hence, the government has further revised the 10% lower taxable income limit from KES 11,135 per month to KES 13,486 per month aimed at increasing net income for low income earners.

(2) Reduction in Cost of Stable Food. The cost of basic commodities such as bread and maize flour is expected to come down through a zero rate tax. No VAT will be paid for bread and maize flour and duty free importation for the next four months on all maize imports is expected to be realized.

(3) Increased Tax on Betting & Gaming. Increased taxes on betting and gaming to 50% for all categories (previously stood at 7.5% betting, 5% lottery, 12% gaming and 15% competitions). Some people use betting and gaming as investment vehicles only to later lose it all, claiming ‘high risks, high return’.

(4) Increased Tax on Spirits. Taxation of beer will remain unchanged while the government has increased tax rates on spirits from KES 175 per liter to KES 200 per liter effectively hiking your Friday night spending.

(5) Cigarette Tax Structure Revision. Tax revision has been done on cigarettes from a uniform inequitable tax structure of KES 2,500 per millie to a two tier tax structure of KES 2,500 per millie for cigarette with filters and KES 1,800 per millie for plain cigarette – thereby, saving some cash for plain cigarette smokers.

(6) Favorable Investment Environment. Various things are expected to change, ranging from:

(a) Lower tax incentives for construction firms developing low cost housing thereby, increasing supply of cheaper housing alternatives in the future.

(b) Similar tax treatment for new financial products (such as the Islamic finance products) with the conventional financial products thereby, may increase the number of new products in the market to choose from. Additionally, government intends to focus on development of Takaful Retirement Benefits Scheme which will increase access to pension schemes for the Islamic community.

(c) Increased supervision of insurance firms thereby, ensuring financial stability of the sector for our sake.

(d) Regulation measures for umbrella retirement benefits schemes to govern operations of such schemes will benefit many employees within organizations without their own pension scheme.

(7) Increased Access to Better Healthcare. VAT exception for the construction of specialized hospitals and purchase of medical equipment might see us have more specialized centers within the country, thereby reducing overall expense and need to travel aboard for specialized medical treatment.

(8) Crackdown on tax evasion. Additionally, plans to reassess and streamline double taxes by country government are underway.

(9) Donation Expenditure Deduction. Income Tax Act proposed revision will now allow deductions for expenditure incurred on donations towards alleviation of distress during national disasters. However, such donations should be deductible if channeled through Kenya Red Cross, a Country Government or any other institution responsible for national disaster.

(10) Lower Cost of Dates. Importation of dates during the holy month of Ramadhan will be done free of taxes.

(11) Investment in REITs and ABS. The government has put in place VAT exemption for all transactions related to the transfer of assets into Real Estate Investment Trusts (REITs) and Asset Backed Securities (ABS) thereby, potentially increasing the variety of REITs and ABA products in the market.

(12) Price Stability. Budgets function best if you can adequately predict the movement of prices in the market. As such, the government seeks to ensure price stability with monetary policy targeted to be about 2.5% and fiscal policy to maintain low and stable interest rates, and stable and competitive exchange rates stable.

(13) Business Costs. The government will further reduce cost and/or time of opening and running a business coupled with reducing obstacles to start and operate online businesses thereby,  potentially exponentially increasing the opportunities to start business ventures for supplementary income.

(14) Public Servants Salary Harmonization. Still set to begin in July 2017 by SRC.

The bottom line: What can I say? It’s a work-in-progress budget. There really wasn’t much that was new or innovative for the average Kenyan. However, a lot of development work is happening and those that seemed to have been forgotten are slowly coming to the forefront. So let’s raise a glass to that…even though it will cost us a little more this year to do so.

If you’d like read more on the budget, here is the Budget Statement 2017 18.pdf for the Fiscal Year 2017/2018 (1st July – 30th June) By Mr. HENRY K. ROTICH, EGH.

 

- Advertisement -

5 of the Biggest Investment Benefits of M-Akiba

By
Irene Makanga
-
0
5 of the Biggest Investment Benefits of M-Akiba

Let these 5 benefits help you work through your decision-making process of investing in M-Akiba.

The government is set to float a three year fixed coupon bond through a special edition bond tomorrow. The aim is to increase access to investment in government bonds to the lowest level investor. Bond investing is commonplace for banks and serious investors. They invest to boost and diversify their investment portfolios and enhance performance. For most businesses, the decision to invest in bonds is an easy one. However, for those who do not know much about bonds, the benefits and drawbacks need to be closely considered before making a decision.

Below are the five biggest benefits of investing in M-Akiba that may help you work through your decision-making process:

# 1 Better Than the Bank

The interest rate offered by M-Akiba is greater than the one offered by banks (7% interest rate). Therefore, if you are saving and do not need the money in the short-term, bonds will give you a relatively better return at low risk. The M-Akiba bond is government-issued and hence is deemed to be “risk-free” and guaranteed, making it a safe place to park your savings.

All banks and investment institutions invest a portion of the funds you save with them in government securities. Banks currently hold over 50% of all government securities which are estimated to be worth almost 2 trillion Kenya shillings. So, why not cut out the banks and investment directly with the government through the M-Akiba platform and earn full value for your money.

#2 A Steady and Predictable Income

The M-Akiba infrastructure bond promises a 10% coupon, tax-free. This means that this special edition bond on the M-Akiba platform will pay 10% interest semi-annually.

For the next three years, the bond will make six payments on specified dates. The bond will provides some capital investment preservation at a time of high inflation rates. And also, a predictable income stream. Owning bonds enables you to predict with a greater degree of certainty how much income you will have within a given time.

#3 Low Minimum Investment

Minimum of KES 3,000 requirement, as opposed to the previous KES 50,000 that was the norm before. The lower requirement will enable anyone to save as much as they can into the platform and be guaranteed a minimum of 150 semi-annually (with a KES 3,000 initial investment).

So the more you save into the platform, the more you could potentially earn from the comfort of your mobile phone – leave alone these 7% returns being offered in the market currently by banks currently.

#4 Convenience

The future is here, and mobile-enabled investment provides us with a lot of control and convenience.  According to the investment prospectus, all investments will be made via mobile money. All communication will be done through the same platform from application to remittance of coupon payments.

Bond investing is a very critical aspect of diversification of investment plans and through your mobile phone, you can quietly build a substantial amount over time.

#5 Freedom & Control

This M-Akiba bond will be the first of many and will offer opportunities to exercise your freedom to invest and control your own funds. The platform offers greater individual freedom as investors have the freedom to invest whatever amount they can.

Additionally, it offers investors an increasingly self-reliant option in securing their investments and thereby their own retirement. Freedom and control for whatever the purpose of saving – be it for your children’s college education, a new home, increasing your retirement income or for any number of financial goals – investing in M-Akiba may help you tremendously to achieve your financial objectives.

#6 Equity versus Debt

If you are looking to invest in the stock market and/or bond market, generally, investing in bonds (debt) is deemed to be safer than investing in equity (stock). The main reason for this is because debt holders are given more priority than shareholders.

Therefore, whether you are a holding company or government bonds, as a debt holder you are given first priority when it comes to payment. Therefore, at a time when the NSE 20 Share index is not doing so well, investing in bonds may prove to be a better option during these economic times.

#7 M-Akiba – A Double Benefit for Kenyans

According to the prospectus, this is an infrastructure bond, which means the funds raised will be geared towards infrastructure development. The success of M-Akiba could mean a lot for the future of this country as we can invest easily, earn some income and develop our country all at the same time.

Bottom Line

There are a lot of misconceptions about investing in bonds, first of which being that the interest is too low.  However, bonds can offer an element of stability to your investments – they are safe and conservative as such are great savings vehicles with low risk. Remember that, it is patience that one needs to build real wealth not high outrageous interest rates/returns.

Happy Investing!

More Information:

So, how much should you invest? There is no easy answer to this question, however, look at your overall investments and see how much you are willing to put into the bonds.

How can you apply for M-Akiba? Before you apply, please read the M-Akiba prospectus. You can download it here M-Akiba Approved Prospectus (PDF).pdf .Then, dial *899# and follow instructions to apply.

Disclosure: This information is provided to you as a resource for informational purposes only. It is being presented without consideration of the investment objectives, risk tolerance or financial circumstances of any specific investor and might not be suitable for all investors. Past performance is not indicative of future results. Investing involves risk including the possible loss of principal. This information is not intended to, and should not, form a primary basis for any investment decision that you may make. Always consult your own legal, tax or investment advisor before making any investment/tax/estate/financial planning considerations or decisions.

- Advertisement -

3 Ways the Emotional Elephant is a Danger to Your Finances

By
Irene Makanga
-
0
Understanding the Dangers of the Emotional Elephant to Your Finances

How do we prepare ourselves for an uncertain financial future when so much is at stake?

Yesterday, a friend of mine asked me if I have ever recommended a client to go visit a psychologist because their money problems went beyond financial problems but rather were psychological problems. This got us talking. We are both in the field of finance and financial behavioral bias is something we are both too familiar with. I try to make aware of these biases to my clients, and instill some level of awareness of the dangers that can limit their financial success.

When it comes to managing money, one requires not only a sound understanding of the knowledge about financial products, investments, risk theory and also tax rules but also an understanding of the biases that we have as fallible humans that make mistakes.

I am normal, and not rational – we all are. I am just like you, but that has not prevented me from reaching my financial goals. I know how my brain can get in the way and drive me to me make financial mistakes. Managing money requires more than just being organized and knowing things about money.

The Brain

Our brain and the chemicals in the brain force us to make irrational decisions based on our emotional needs at any given time. Many investors have succeeded by acknowledging these behavioral biases and using them to their advantage. As such, I seek to highlight some insights of emerging science of personal financial decision making, so you will avoid following your emotions down the rabbit whole.

I will not get into the serious mambo jumbo science of how our brain makes decisions when it comes to financial matters. All you need to know is that our brain is in constant struggle to make financial decisions because we use two parts that are contradicting in nature i.e. the emotional part limits your ability to achieve your goals and the rational part keeps the emotional part in check and drives us to achieve our goals. Have you ever asked yourself why most people know they should save for the future, but they rarely do? They even justify why they shouldn’t.

The best plan is one that keeps our emotions in check, which means delegate your investment decisions by automatically saving into various investment schemes by setting up automated transfers into various investment funds –  that is if you cannot avoid the emotional elephant when making decisions. That way the emotional elephant will never have chance to remind you of all the fun you could be having with all the extra cash. 

However, If you want to manage your money yourself, here are some of the most common behavioral biases that drive people today and how to avoid them:

Overconfidence

Investors are said to overestimate their abilities to analyse investment information and identify the difference between market prices and intrinsic value of any given investment.

Overconfident investors have a tendency to put all their eggs in one basket because they are 100% sure that they will gain a lot.Assume, I have 1 million shilling to invest in a stock. I go out and do some equity shopping. I find a company I really like, conduct some due diligence and decide to buy as many lots that one million can buy.

At that time, the emotional part of the brain is excited and overconfident over the prospect. I mean the company has amazing growth prospects because the industry is growing and their plans sound legit to me. Moreover, everybody knows they are a good company. The emotional part of the brain is placing too much confidence in my abilities to predict the outcomes of my investment decision as I have managed to convince myself that I will make a lot of money because of the mere fact that I am excited about the prospect of that.

How to avoid this

(1) Diversify. Overconfident investors are mostly under-diversified and thus are more susceptible to market volatility. Hence, always diversify your investment as you may not be 100% sure that any given investment will perform as predicted even with all the due diligence done.

(2) Avoid Atypical Mistakes. Assuming that good companies are good stocks to have too.

(3). Face Your Loss. Avoid placing defense mechanisms by coming up with excuses as to why the investment did not work out. Defense mechanisms in themselves are related to overconfidence as they justify your initial reasons and blame bad events to sheer bad luck rather than your own poor investment choices.

Loss Aversion

Investors are said to be risk averse, meaning they dislike losing money more than they like gaining an equal amount of money.

For instance, take the 1 million I had invested. My stock increases in value for a sometime, and then it takes a hit and starts declining. During the time it was increasing in value I was very happy and comfortable with the risk I was taking. Yet, knowing the risk of a potential down turn as I was advised, I get uncomfortable and unhappy about my turn in luck because I dislike losing money (I mean who doesn’t).

The emotional part of the brain is controlled by fear and loss aversion then seems the natural step. So, I get jittery and sell the stock to avoid more loss. While in fact, as a rational investor I should I have invested more money into the stock because a common sense dictates that we ought to buy when everyone else is selling.

How to avoid this

(1) Minimize Regret. We all have regrets sometimes however; despite the fact that it is hard to forget bad memories, do not let them limit you. Replace those bad memories with good ones of wining times. So, do not avoid investing because you fingers have been burnt at stake or invest conservatively because you are afraid.

Herding

Investors have a tendency not to make their own guided independent decisions rather mimic investment action of others or move with the market. 

Not uncommon, that is why pyramid schemes and other con gigs always seem to work. It is not foolish to question as we must always be very fearful when others a greedy. Imagine if I put all my money in a stock in which everyone is buying. By my own action, I too contributed to the rise of the price of the stock through my own buying action. The laws of the market dictate that prices will rise when there is a high demand for any good or service, even stocks. So when you jump into the band wagon, and participate in flocking the market to buy any given stock, the price is sure to rise. And guess what? There is some wise guy waiting.  He will sell at the point he feels the market price for the stock is good for him and then subsequently triggers an action for selling. At this point, you will be left like, but I just bought the stock!! As the price moves back to its intrinsic value.

How to avoid this

(1) Think Independently. Do not follow the herd and be wary when people say “but everyone is buying it” as a means to justify their own participation.

(2) Avoid Framing Dependence. Do not buy high and sell low, instead use logic, not emotions and avoid the band wagon. Tolerate risk based on your own financial circumstances and not on the direction of others or the market.

Happy Investing!

Learn more about how to avoid being tricked out of your hard earned cash by following this link Red flags For Investment Fraud & Common Persuasion

 

- Advertisement -

What You Should Learn From The 2017 Wealth Report

By
Irene Makanga
-
0
What You Should Learn From The 2017 Wealth Report

Where do the world ultra-wealthy investment, why and what biggest concerns about wealth preservation? Here we reveal the key insights from the Knight Frank’s 2017 Wealth Report.

The Rich Keep Getting Richer

In the face of rapid economic expansion in Africa, the number of dollar millionaires continues to rise and is expected to grow on average by 80% in the next decade according to Knight Franks estimates.

Africa is the Land of Opportunities

Africa is rising and is producing a great number of ultra high net worth individuals within the next decade (+ 33% to 3,030, from 2,270 according to the Knight Frank estimates)

7500 New Millionaires In the Next 10 Years

Despite the political instability in Kenya, you have to love our people’s resilience and business prowess. Every day, people are starting businesses and the country’s wealth is expected to rise and rise. By 2026, Kenya is expected to create 7500 new millionaires.

Kenya has a total population of 46 million people and only 9,400 dollar millionaires currently. What are these guys purview to and you are not? It is no secret that the rich will keep getting richer and even more people will join these ranks within the next decade. However, remember – where you start isn’t where you wind up, so learn and work hard.

Three Takeaways

(1) Types of Investment They Make. Their asset allocation portfolio on average constitutes: 25% Investments (equities, bonds, cash, precious metals etc), 24% real estate investments, 23% personal businesses, 16% personal residences, 6% alternative investments such as art, wine, cars etc.

(2) Preferred Type of Investment. Their most preferred investment is in real estate – this is perhaps so because historically, real estate has performed much better than equities and fixed income assets. Their preference towards real estate stems from their preference for assets that generate more predictable income, as real estate will generate cash regardless of the underlying change in the value of the assets unlike equities or fixed income assets.

(3) Biggest Concern for Wealth Preservation. They worry about political uncertainty/instability (this is a big problem in Kenya), potential fall in asset values (may arise to currency fluctuations and inflation) and finally, government decisions with regards to raising taxes, capital controls and rising interest rates.

Finally…

Many Kenyans are abuzz about this report, many of whom are wondering how they can join these ranks. However, recognize there is a lot to learn and much more to do. If we lived up to 100, we would have almost three lifetimes of some people’s lives to try again, if we fail.  If your goal in life is to be wealthy, realize that working for some else won’t get you there because when you work for some else you relinquish your dreams and build theirs. Many Kenyans are currently unemployed have it in their heads they will not make it. But how will you know unless you try? Best way to go about things is to take failures as lessons and fail forward frequently.

- Advertisement -

3 of the Biggest Financial Mistakes Couples Make

By
Irene Makanga
-
0
3 of the Biggest Financial Mistakes Couples Make

A lot of people have a lot of misconceptions about love and money which have been developed from a very young age. Many girls and women these days still believe that they need to man to solve all their emotional and financial problems – the reality is couples need to work together to make, manage and invest their money. When the honeymoon phase is over, things get real and as partner in the relationship it is detrimental for the survival of the union for couples to manage their finances together.

Here are the top 3 mistakes that couples make when navigating through marriage:

 1    Not Discussing Money

People don’t just have conversations about money and they don’t know where they stand or where their partners stand. So one of the things that have to happen is that you have to know what you own and what you owe, both of you, and make decisions going forward. When couples fail to openly talk about money, it develops into a habit which is then passed on to their children.  Silence brings about miscommunication, misunderstandings and a lot hurt feelings as money sometimes is used by spouses to express love, enforce control, humiliate or even punish. An open environment where money is discussed openly is not something that can easily be achieved however, nothing good comes easy and as such gift your relationship with an open safe places to discuss pertinent financial matters.

 2    Not having a financial advisor or meeting one alone

We understand that life can get in the way of getting some tasks done but there are some things, just like other very important things, that require time out of your busy schedule.  Invest in some time to make important decisions about money and seek advice from professionals to help you go along. Working with an advisor will give you a chance to talk about money openly and honestly, discuss and resolve financial matters and make decisions about the future of the family. Moreover, it will help you avoid some of the biggest money mistakes and keep the love alive.

 3    Playing the financial damsel

The trend in our society is women (and sometimes men) seeking out partners who can adequately sustain them both emotionally and financially. Waiting to be financially rescued is some risky business because what happens when your partner suddenly dies or decides to leave you? A man/woman cannot embody your financial plan. You cannot afford to be financially indifferent and waiting for your partner to do everything. Marriage is about team work – particularly in today’s day and age you cannot afford to take a back seat. We must leave behind all the Cinderella tale nonsense we learned as children, take responsibility and do it now!

It is important to note that, most marriages do not have money problems; they simply have a communication problem. Therefore, in the same breath as a couple you discuss your children’s welfare; money too should be among the list of things discussed.  If you work together towards shared financial goals, you can avoid not only breaking your wallet and purses but also, your love when you say things that you will regret later.

- Advertisement -

7 Ways To Prevent Money From Ruining Your Marriage

By
Irene Makanga
-
0
7 Ways To Prevent Money From Ruining Your Marriage

A lot of people don’t view marriage as a financial partnership but rather a societal verification of their romantic feelings, so they see no need to talk about finances. Being financially compatible is as important as being a good match sexually, having similar ideas about raising kids, where to live etc. It is not something you can ignore and hope for the best. This is the stuff that makes or breaks relationships.

Some of the most common reasons cited for divorce are finance related. Being financially compatible with your partner is so important, even more than sex. If you do not see eye to eye on money, it’s a huge red flag indicative of a potentially big problem down the road that can shutter a marriage.

I have over the years gathered a lot of knowledge about finance and relationships from the countless interviews I have had with couples who have been married for years and the countless books about finance I have read. From all this I can summarize seven pieces advice for newly married couples:

#1 Never hide spending from each other, not matter how small

Hiding expenses from your spouse does not only damage your financial plans but also damages the trust that you share as a family team member. In many relationships friction sometimes happens when there is disagreement about daily spending and that can be tough to solve if you don’t have shared goals.

#2 Talk about your shared goals and take stock as often as possible

A marriage is a partnership and as such, sharing your goals often helps solidify not only the relationship but also eliminates any misunderstandings. Both people need to come around to “we’re a team” and really understand each other.

#3 Plan for retirement together but save for retirement separately

This will help you take advantage to great retirement plans (if one of you has a better plan than the other and it’s also important to spread your financial assets as well). Additionally, in the event of divorce (God forbid) you will both have a retirement plan.

#4 Marriage is about supporting each other

There will come a time whereby you might have to support your partner. It’s going to happen so don’t be frustrated by it. Instead, embrace the situation, plan for it and be glad that you can be there for your partner when certain changes happen.

#5 Start and emergency fund

Strenuous situations can cause strain on a any marriage. If it can be avoided, then you should. Starting an emergency fund can go a long way to ease difficult times during family emergencies or job loss – whatever comes along unexpectedly and demands money.

#6 Forgive each other, always

Disagreements will happen and you will come to discover things about your spouse after living together for years and they will really piss you off. However, remember to forgive those flaws and find a way to focus on the positive and you will be better off.

#7 Spend time together

Nourish your marriage by spending time together. It will keep your marriage stronger and strong marriages rarely wind up in divorce. This will most probably be the greatest financial move you can make together. It will save you a lot of money as the reality is divorce is expensive.

Final Thoughts

Marriage is a wonderful thing. You can take this advice and all other advice your parents and elders will give and you will find that your financial problems in your marriage will become much easier to handle.  As I have discovered that a relationship will not survive if one partner is a saver and the other is a spender. It will endlessly lead to fighting and resentment.

A friend of mine joked, that when it comes to marriage sex is fleeting but cash is forever, perhaps you can tell me how true that is.

I hope this resource helps you. Please let us know what you think in the comments section below. If this article has been of great help to you please share it.

Meanwhile, You can click on the following links to read more on financial planning and marriage:

- Advertisement -
1...161718...21Page 17 of 21

About us

Wealth Architects' mission is to fuel wealth aspirations in offering savvy guidance for sustainable wealth architecture that fosters lasting legacies and financial empowerment across generations.

Company

The latest

10 Unpopular Money Opinions That Everyone Should Think About

Investing 0
We live in unusually tough times and a lot...

How to Save, Spend, and Think Rationally About Money

Money 0
Financial concerns can cause stress, regardless of income level....

4 Empowering Tiers to Navigate Your Journey to Financial Independence

Personal Finance 0
Financial freedom goes beyond mere independence from external constraints....

Subscribe

© 2024 Wealth Architects. All Rights Reserved.

[]