Investing in stocks still sounds like a risky endeavor to many beginners. But it doesn’t have to be that way – with a mature strategy, money can be invested sensibly here. Online platforms and digitization have helped make processing both easier and cheaper in recent years.
You should also focus on investing in the stock market. The prerequisite for this is a well-diversified portfolio of at least 30 to 40 stocks. These should be spread across various industries, countries and currencies and contain companies of different sizes. Depending on your age and preferred investment horizon, you should include a proportion of government bonds to reduce expected portfolio volatility. Depending on your preferred risk level, you can increase or decrease the proportion of bonds. It is of course important that you consider your personal circumstances and seek independent advice before making an investment decision.
Investing in Kenyan stocks for the long term
The biggest misconception about investing in stocks is the short-term perspective. Stocks are subject to constant fluctuations. Larger movements within a short period of time are not uncommon. This is perfectly normal!
But what about actual crashes? Again, a crash doesn’t mean immediate disaster unless you make the worst mistake and sell everything at the bottom. History shows that stock prices usually recover over the long term after a crash. Losses occur when quick money is expected and acted without thinking.
For this reason, many of the world’s most successful investors in the stock market take a buy-and-hold approach. If you plan on cashing out your money in the next five years, investing in stocks probably isn’t the way to go.
Diversification when investing in stocks in Kenya
Aside from the major global economic crises, which fortunately don’t happen very often, many crashes are confined to specific industries or regions. This phenomenon harbors both opportunities and risks.
For example, if you poured all of your savings into the numerous tech companies in the ’90s, you would have almost entirely lost them by the early 2000s. The so-called dot-com bubble tore a number of tech companies into the abyss and unbalanced an entire industry.
The answer to this risk is diversification. By distributing your investments across a wide variety of industries and countries, you can effectively compensate for losses in individual areas.
Advantages of investing in Kenyan stock market
- Simple investment: In contrast to complicated financial products such as funds, there are no further structures between you and your investment.
- Ownership: You own your shares directly, making your investment part of the company.
Earnings prospects: As a long-term investment, equities offer good returns with comparatively low risk.*
- Control: You choose the companies that appeal to you. This is how you can put together your own portfolio. This is very easy with Inyova’s online tool.
- Sustainability: Total control allows you to invest in companies that align with your values. You can weed out companies you don’t want to support (such as those in the fossil fuel or weapons sectors).
- Liquidity: Your money is available within a short time if you need it.
Disadvantages of stock markets investing in Kenya
- Volatility: Share prices are in constant motion and are subject to short-term fluctuations. Anyone who wants to invest in shares should therefore do so for the long term.
- Risk of loss due to a lack of diversification: Those who invest too one-sidedly risk high losses if a company, an industry or a region falls short of expectations.