How safe are your Chama investments? You are generally exposed to three kinds of risk with your investments, no matter whether they are risky or safe. The first is a possibility to lose money. The second is loss of purchasing power, that is, devaluation of your money due to inflation. The third is the risk of lack of liquidity.
As a Chama, how can you protect your members’ hard earned cash while investing? Here are some investment choices that are said to be safe. Though safe, keep in mind that safe long term investments rarely yield much, because they are primarily intended to protect your money and increase it very slowly rather than earn you high returns.
Fixed deposit accounts are a very traditional, well secured and rather conservative form of investments. Here you simply hold your money in the bank for a period of time say 3 to 12 months and earn and interest. You usually do not have a possibility to instantly withdraw your money, so, you should consider saving in such a way only funds that you do not need immediate access to. You should also know that most banks do not pay off high returns, and you can’t gain any considerable profit with their help. However, if your Chama has saved up a lump sum you can park the funds in deposits if other avenues are not viable. You are sure that your money will stay safe in a fixed deposit account.
In case of fixed annuity, the returns could be higher than fixed deposits in the bank but the risks are high as well. A fixed annuity is a contract with an investment company which provides you financial services. You trust them with your money to manage, and in exchange for “lending” them your money, they pay you a guaranteed return rate. Here, an investment company is obliged to pay you off, unless it has fallen into bankruptcy, and that’s a rather rare occasion. Fixed annuities are really a very good investment option. However, it pays to be cautious with this investment vehicle. A few years back some new investment companies mushroomed with promises of up to 100% returns for deposits. These are obviously promises meant to lure people. Although people received interest for a few months, the companies vanished with their investments. Today, the situation is not as bad because the government has banned pyramid schemes and there are higher disclosures and company bonds are regulated and rated as well. Beware of someone promising extra ordinary returns, because it may be another scam waiting to happen. It is a good idea to always do your homework about any company before you choose to invest there.
Money market accounts issued in funds and investment companies operating
on money markets is a popular cash management tool. They are really not
as safe as fixed deposit accounts, but still, some investment experts consider them to be rather nice high yield safe investments. It is a good, comparatively secure form of investing modest sums of cash. If you do want to invest, but have little money, you may
give it a try on money market. Companies such as Old Mutual, Britam and CIC Insurance can help you.
Investing in a residential property
The main motivations for investing in a property are to: have a roof or shelter or save on rens, earn rental income and benefit from capital appreciation over a period of time.
The advantage of investing in residential property is the flexibility to use it for leasing it for a rent. However, property investments can fetch gains over the medium to long run.
One needs to be patient for a period of at least 3 years to see significant price appreciations and increase in rentals. Remember that rental earnings can be
a residual or passive income every month for the rest of your lives.
Government issued securities are considered to be very safe. This is because they are very well insured. Government-owned sector of economy is usually the most secure. So, if you want safe investments, you may want to purchase securities issued by the Government through The Central Bank of Kenya.
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