Income-generating assets. Market performance. Portfolio balancing. If these terms make your head spin and put you off ever investing in the stock market, you’re not alone. But while investing can be a confusing world to dive into, the sooner you start, the more you’ll see the rewards. In fact, it’s best to start investing when you’re young – such as by putting away the money you earned as a 10-year-old for doing odd jobs around the house. But even if you’re all grown up and spent your childhood pocket money on sweets without saving a cent, it’s never too late to start. 

Because it can be complicated, most people go about investing by getting a company to put their funds into various financial products linked to the stock market. But which products should you invest in? This all depends – on your age, your circumstances, your timeframe and your investment goals. Whether you’re an investment novice or a successful businessman looking to grow a nest egg you’ve already built, here are a few key pieces of advice that you should bear in mind when choosing the right investment:

  • Define your goals and investment timeframe. First work out what you want to achieve from your investment strategy. Is it to have a really comfortable retirement, or is it to make as much as you can off the money you have now? Deciding this means you can work out the right investment timeframe, which not only gives you a realistic picture of when you can begin to see results, but also helps you decide which investment products are right for you.
  • Decide if you need income, growth or both. Generally, investments are divided into income assets and growth assets. Decide what your goals are: do you want a steady income to enjoy once you’ve retired, or do you want a lump sum to pay for that dream round-the-world trip in five years’ time? Besides growth or income investments, you can also choose a product that offers some of both.
  • Understand the risks. Before you put your money into an investment, it’s really important to understand what the potential risks are. What happens if the market takes a turn for the worse – will you lose the money you put into it in the first place? Or what if your investment is in local currency and the Kenyan Shilling devalues? And what about if you have a cash flow crisis and need access to the money you’ve invested – can you do this?
  • Diversify to minimise risk. A good way to get the best bang for your buck while still minimising your risk is to spread your money across a wide range of investments with different characteristics. Doing this is one of the best ways to protect yourself against sudden falls in any particular market or sector, while still making sure your money is working as hard as possible. A diverse portfolio of investments also means that returns from better performing investments can help offset those that may be underperforming.
  • Recognise the costs involved. Whenever you’re considering an investment plan, it’s crucial to consider all the costs that are involved. The most common costs you’ll face include annual management fees and initial fees you’ll pay to the company you’re investing with. Then you’ll also need to think about taxes you’ll owe on any dividends you draw.
  • Discipline and planning are key. Becoming a successful investor requires you to stop, think and plan so that you can reap the financial rewards in the long term. In terms of planning, think carefully about your personal situation when considering which investments are best for you. And when it comes to discipline, keep your eye on the goal and don’t be scared off by the potential impact of the risks you’re taking.

Once you’ve started investing, review your portfolio at least once a year and rebalance where you need to, in order to make sure your asset allocation stays on track. This is especially true if something changes in your life, such as you get married, or if the market nosedives. This rebalancing may involve selling some investments in favour of buying others – and as always, keep your wits about you in terms of the cost and tax implications involved.

It’s also important to keep market movements in perspective. Investing in the stock market can be nerve-wracking, as by their very nature, markets fluctuate over time. Accept this and know that the assets you invest in will rise and fall depending on various economic, social and political events that affect the market. By staying the course and knowing that “it’s time in the market, not timing the market”, you’ll be able to develop a long-term mindset about investing that almost always yields rewards.

With ICEA LION as your investment partner, we’ll help you come up with an investment plan that really works for your timeline, your goals and your personal circumstances. Keen to get started? Contact your broker or agent or contact us directly to get started on an investment plan today.