When one hears the term “investing” the first thought that leaps into most people’s minds is the scene at a stock exchange firm. Most young people cringe at even the thought of investments as they assume they are meant for the wealthy, or for much older people who are further along in their career.

This could not be further from the truth.

If you’ve considered living your financial life responsibly, investing is the best way to grow your money, and most types of investments are accessible virtually to anyone and everyone, regardless of age, income, or career level. However, it’s important to note that these factors will influence the kind of investment you choose.

Here are some of the best investments anyone from any walk of life should consider engaging in. Keep in mind that lower risk generally means lower returns.

1. Private sector or government bonds

Bonds sound complicated, but they really aren’t. To break this down in layman’s terms, a bond is basically a loan that either a private sector or the government takes from investors when they need to raise funds for a particular project such as building a major road or a library.

The lender agrees to make interest payments to the investor in exchange for these loans. Bond investors usually receive periodic payments based on the interest rate at which the bond was bought.

Once the bond matures, the principal amount (i.e. the amount invested) is paid back to the investor.

‍Here’s how a bond works: say you buy a 20-year bond worth Ksh. 100,000 at an interest rate of 12%. For the first half of the 20-year tenure (i.e. the first 10 years), you will receive two installments of 6% each every six months, which in this case will be Ksh. 6,000. At the end of the first half, you will receive half of your investment back, i.e. Ksh. 50,000.  

For the remaining 10 years, you will continue to earn an interest of 12% per year on the remaining investment, which is Ksh. 50,000. So you will earn Ksh. 3,000 every six months.

At the end of the 20 years, you will have earned Ksh. 180,000, which is almost 2x the initial investment that you put in.

Advantages of a bond:
- Higher interest rates

- Regular payouts, every 6 months

- Safe investment choice, the Kenyan government has never defaulted on a loan

- In case of an emergency, you can sell the bond at any time in the secondary market

- If you buy an infrastructure bond, you do not need to pay any taxes!

Disadvantages of a bond:

- Very long term; you have to lock away your money for a long period of time to reap the benefits

- Bonds are not capital protected

- High minimal investment of Ksh. 50,000 for a fixed coupon and Ksh. 100,000 for an infrastructure bond

Want to buy a treasury bond today? You can start here.

2. Fixed deposits and savings

This is simply where you put your money in a bank for a fixed period and then you receive an interest rate. Banks offer fixed deposits for 3 months, 6 months, and 12 months. During this period, you don’t have access to your money. If you withdraw your money prematurely, you risk facing a penalty.

The interest rates vary with the different banks. Right now the Kenyan bank's fixed-rate ranges from 5% to 9%.

Returns are generally low but if you’re a low-risk kind of person this is a secure option for you.

Advantages of a fixed deposit

• You can take a loan against your fixed deposit.
• It’s a one-time effort. You don’t have to keep track of the market to understand how your fixed deposit is performing.

Fixed deposits are customizable. There’s no specific upper limit you can put into your FD. Disadvantages of a fixed deposit:

• Withdrawing your funds in your fixed deposit leads to a penalty charge. You may end up losing out on the interest.
• With a low-risk investment comes a low-return interest rate.
• Your interest is taxed

3. Commercial papers

Just like the corporate bonds, in this type of investment, you lend companies money for a short-term project. Most of the time it’s a year long.

Due to the high risk presented by this investment, it’s important to understand the company you’ll be lending to, what they’ll be doing with the money, and the likelihood that you’ll get it back.

Advantages of investing in commercial papers

• Commercial papers have a wide range of maturity
• High-interest rates of 13-18%
• They have a high liquidity value

Disadvantages of investing in commercial papers

• Your funds are locked away until maturity
• Only available for a few, selected companies
• High-risk, high-return investment as you’re lending money to a company that may not be well regulated

4. Save & grow your money on Koa

Whether you are starting off your savings journey or are a pro saver, Koa is the right option for you. With Koa, you can save towards your different financial goals (or just save in general) and start earning interest on your savings on a daily basis! Plus, your interest is compounded so you can literally watch your money grow without having to do much at all!

Advantages of saving on Koa:

• Competitive interest rates of up to 10% per annum, that compounds daily
• Super easy to use- takes less than 2 minutes to sign up and less than a minute to make a deposit
• You can save towards different goals on one platform
• You can customize your own savings plan and we will send you reminders to save!
• You can start with as little as 100 bob
• 100% transparency on your savings and interest earned
• Learn while you earn- benefit from our financial tips

‍Disadvantages of saving on Koa

• None!

Saving on Koa means opening the door to your financial freedom and you deserve it. Start saving today!

5. Ownership investments

Ownership investments involve stocks, real estate, and precious metals. This is one of the most popular types of investments right now in Kenya, but also the riskiest as it is very difficult to predict market conditions

Though traditionally this was reserved for the wealthy, with the growth of the market in Kenya, you can now invest in possible sums through, Real Estate Investment Trusts or REITs.

The best part about a REIT investment is that you can exit your investment depending on the terms.

But even with this investment, you need to shine your eyes. Never make a blind investment. Do your research extensively.

Advantages of investing in an ownership

• You have an attractive long-term investment
• With investment ownership, you enjoy tax deductions
• There is pride in ownership. For instance, if you buy a home, you can customize it to your liking without requesting anyone’s permission like a landlord.

Disadvantages of investing in an ownership

• Potential depreciation. Not all homes or stocks or even precious metals grow in value
• Illiquidity. With an exemption of stocks that can be sold in a couple of minutes, real estate may take longer to get sold.

Now that you are well versed in the different types of investment options available, you need to assess which one is right for you. Stay tuned for our article next week on How to Pick the Right Investment Option for You!