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Beyond the MMF: Building a Diversified Portfolio · The Mwango Capital Podcast

0:00
SPEAKER_01: Good evening, everyone.
0:01
SPEAKER_01: Once again, for learning our Mwango Spaces, I'm Reena Namsia.
0:04
SPEAKER_01: I'm your host tonight and we have speakers from FIDA Investment Banks.
0:08
SPEAKER_01: That is Reena Hicks, as many of us know her.
0:11
SPEAKER_01: That is the Chief Operating Officer at FIDA Investment Bank.
0:15
SPEAKER_01: We also have Ian Kahangara, Chief Investment Officer at Crider Investment Bank.
0:20
SPEAKER_01: Before we go into the topic of today,
0:22
SPEAKER_01: which is building a diversified portfolio where we think beyond just
0:26
SPEAKER_01: the money market funds that most of us are probably familiar with.
0:30
SPEAKER_01: And for many, there are now the default answer to the question, where should they put money?
0:35
SPEAKER_01: Many people get to ask first question and all they end up to is putting their money
0:40
SPEAKER_01: into a money market fund.
0:42
SPEAKER_01: But investors have also become more sophisticated and the questions are not.
0:45
SPEAKER_01: No longer just when to keep the money, but how to also build professional portfolios.
0:50
SPEAKER_01: So we have our speakers today, that is Rina and Ian,
0:53
SPEAKER_01: and we're going to talk about how do we build a professional portfolio
0:57
SPEAKER_01: that is working for you as an investor or you want to earn an income and all that.
1:01
SPEAKER_01: Now, I'd like to welcome our speakers to introduce themselves and give us
1:05
SPEAKER_01: a brief description of what you actually do at FEDA Investing, because
1:10
SPEAKER_02: that is you, Rina.
1:11
SPEAKER_02: Thank you so much, Namsia.
1:12
SPEAKER_02: First of all, let me just say it's such an honor for me to be here at Mwango.
1:16
SPEAKER_02: This is, I think you put out really amazing content.
1:19
SPEAKER_02: I like that you're research led, you're factual, which is fantastic.
1:23
SPEAKER_02: So thank you so much for hosting me.
1:24
SPEAKER_02: My name is Rina Hick, Chief Operations Officer at FIDA.
1:28
SPEAKER_02: In terms of what I do specifically, I actually like to refer myself as a KYM.
1:32
SPEAKER_02: I'm the KYM at FIDA.
1:34
SPEAKER_02: The Kenyans would typically call that.
1:36
SPEAKER_02: It just means that I know what's going on everywhere.
1:39
SPEAKER_02: I'm involved in the day-to-day operations around our three core business divisions,
1:43
SPEAKER_02: which is top brooking.
1:44
SPEAKER_02: We also have a corporate finance division and finally our unit trapped funds.
1:50
SPEAKER_02: So I'm involved in all the three areas.
1:53
SPEAKER_02: Thank you so much. Thank you, Rina.
1:55
SPEAKER_02: Ian, you can just tell us briefly what you also do.
1:58
SPEAKER_00: Good evening, everyone.
1:59
SPEAKER_00: And for some who are listening to us from different places, good morning, good afternoon.
2:03
SPEAKER_00: My name is Ian Kahangara.
2:04
SPEAKER_00: I'm the Director of Global Markets in Faida Investment Bank.
2:08
SPEAKER_00: And just on top of that, I'm also the Chief Investment Officer of Faida Unique.
2:13
SPEAKER_00: Trust funds.
2:14
SPEAKER_00: So the main question is, what do I do on a daily basis?
2:17
SPEAKER_00: I oversee the whole running of the funds that we have.
2:21
SPEAKER_00: Under the umbrella scheme, we have two active funds,
2:24
SPEAKER_00: which I'll summarize just to be Oak Special Fund,
2:27
SPEAKER_00: Tenet Shilling and So from investment decisions, counterparty engagements,
2:33
SPEAKER_00: where we need to open custody, subcustody, from subsidies, talking to regulators,
2:39
SPEAKER_00: from moving to operations, to even distribution.
2:42
SPEAKER_00: That's where we see how do we package the products that you have and go to market,
2:47
SPEAKER_00: looking at marketing.
2:48
SPEAKER_00: So I end up looking at now being the smaller KOM,
2:51
SPEAKER_00: looking at the fund managed by the business,
2:53
SPEAKER_00: looking at everything that has to go there,
2:56
SPEAKER_00: including hiring of new staff and also looking at appreals.
3:01
SPEAKER_01: Thank you, Yen, for that introduction and telling us what you actually do
3:04
SPEAKER_01: at Faida Investment Bank.
3:05
SPEAKER_01: Now, I'll start with you, Rina.
3:07
SPEAKER_01: Probably in your day-to-day operations, overseeing operations at Faida Investment,
3:12
SPEAKER_01: you've probably met different kinds of investors and also we've seen you speaking
3:16
SPEAKER_01: on other platforms and you speak to even ordinary Kenyans and, I mean,
3:20
SPEAKER_01: almost everyone, every walk of life.
3:22
SPEAKER_01: So what's your experience with Kenyan Investor and what can you say how
3:27
SPEAKER_01: a Kenyan Investor thinks about money in regards to that?
3:30
SPEAKER_01: How do you think as a Kenyan we should think about money?
3:34
SPEAKER_01: Let's start from there.
3:35
SPEAKER_02: Generally, there's a huge curiosity around money in Kenya.
3:40
SPEAKER_02: People want to grow their money.
3:42
SPEAKER_02: They want to be able to invest.
3:43
SPEAKER_02: They want more money to be able to do the things that they enjoy doing.
3:46
SPEAKER_01: And the idea is, you know, I want to be able to grow what I have to earn more.
3:50
SPEAKER_02: What can I do? And so you find a lot of Kenyans have more than one income source.
3:54
SPEAKER_02: So they'll perhaps their employment and have a side hustle,
3:57
SPEAKER_02: or they'll have one business and perhaps something else that they do.
4:00
SPEAKER_02: So I find Kenyants generally fairly good with trying to find ways to make money.
4:05
SPEAKER_02: I think one of the things I also see are tied with that is the fact
4:10
SPEAKER_02: that they are constantly looking for what is that one investment that is best
4:14
SPEAKER_02: for me, which I find really interesting.
4:15
SPEAKER_02: They have this perception that there's this one thing that if they just did
4:19
SPEAKER_02: that they would do really, really well.
4:21
SPEAKER_02: So I find that unique about us.
4:23
SPEAKER_02: We want to do this one thing and it completely transformed my life,
4:27
SPEAKER_02: which I find really interesting.
4:28
SPEAKER_01: Yeah, that is very interesting because people always tend
4:31
SPEAKER_01: to think there's this one particular thing that maybe
4:34
SPEAKER_01: if they do will actually fulfill what they're looking for and probably is just
4:39
SPEAKER_01: within them.
4:40
SPEAKER_01: Now, if you had to challenge one degree,
4:42
SPEAKER_01: believe that Kenyans have a I've met
4:59
SPEAKER_02: So many people who have invested
5:02
SPEAKER_02: in opportunities that are highly risky,
5:05
SPEAKER_02: but have not taken the time to fully understand what they're investing in.
5:08
SPEAKER_02: And what they focus on is the return.
5:10
SPEAKER_02: As I was preparing for this, I remember a story of a man I met who...
5:13
SPEAKER_02: worked really hard.
5:14
SPEAKER_02: He saved all the money that he had put together through his work over many years
5:20
SPEAKER_02: and he invested all of it, which ended up being about 2 .5 million shillings.
5:23
SPEAKER_02: He was a young married man, about 35 in age,
5:26
SPEAKER_02: and he put all his money in this one circle because he had been told
5:30
SPEAKER_02: that that circle was paying the highest returns.
5:33
SPEAKER_02: But unfortunately, Shortly after,
5:35
SPEAKER_02: that cycle went under and there was a whole hula baloo about it.
5:38
SPEAKER_02: And every investor that had put in money in the cycle tried to get their money out
5:42
SPEAKER_02: and they couldn't.
5:43
SPEAKER_02: And so one thing is a problem and going for the highest return possible.
5:47
SPEAKER_02: I think that's one challenge.
5:49
SPEAKER_02: If I had to challenge, I'd say this one belief
5:51
SPEAKER_02: that I just need one opportunity that's giving me the highest returns
5:54
SPEAKER_02: as a thing I should aim for.
5:55
SPEAKER_02: That's one thing I'd completely challenge and say, no, investment doesn't work that way.
6:00
SPEAKER_01: Maybe people need to look into diversification and get into that.
6:03
SPEAKER_01: Now, onto you, Ian.
6:04
SPEAKER_01: Given your daily details that you do at Faida,
6:07
SPEAKER_01: I believe it's partly into building portfolios and all that.
6:11
SPEAKER_01: So, an investor who wants to start investing or has money lagged
6:16
SPEAKER_01: or has been investing, what is the starting point?
6:19
SPEAKER_01: Where should someone start by asking?
6:21
SPEAKER_01: Is that money supposed to achieve something?
6:24
SPEAKER_01: They're actually confused.
6:25
SPEAKER_01: Where do they need to put the money?
6:26
SPEAKER_01: Do they stick to the money markets or do they look to other portfolios?
6:30
SPEAKER_01: And actually, what does it mean to have a financial portfolio for an investor?
6:35
SPEAKER_00: I would like to define who's an investor.
6:37
SPEAKER_00: That's the first thing.
6:38
SPEAKER_00: An investor is a person or an organization that puts money into an asset
6:43
SPEAKER_00: or a business with an expectation of earning an income or growing its value
6:48
SPEAKER_00: over time or both.
6:49
SPEAKER_00: So we are starting We have to define who is an investor.
6:52
SPEAKER_00: We are saying that the person with one middle and the biggest problem
6:56
SPEAKER_00: that we've had, especially just what you've said,
6:59
SPEAKER_00: the beliefs we have in Kenya is we all think that one solution fits all.
7:04
SPEAKER_00: So if I came here and I told you, okay,
7:06
SPEAKER_00: the best thing is put 30% in a money market fund,
7:09
SPEAKER_00: put maybe 30% in bonds and the rest of the money in maybe special funds.
7:14
SPEAKER_00: It will sound like a good answer.
7:16
SPEAKER_00: The question is, are we advising?
7:18
SPEAKER_00: Is this person 65 years old?
7:20
SPEAKER_00: Does he have stable income? Is he retired?
7:22
SPEAKER_00: Is he 25 years old?
7:24
SPEAKER_00: And what are their needs?
7:25
SPEAKER_00: So first and go down to what are we supposed to do or to look at when you are investing?
7:31
SPEAKER_00: My philosophy is one, give every shilling a job,
7:35
SPEAKER_00: a date and a limit on how much loss it can take.
7:39
SPEAKER_00: So you have a million.
7:40
SPEAKER_00: If you have a million and already you are stable and have a constant income
7:44
SPEAKER_00: and you are debt free, it's a very different
7:49
SPEAKER_00: So the first thing I usually say is first look into your debt portfolio.
7:53
SPEAKER_00: How much are you paying in your debts?
7:55
SPEAKER_00: Do you have mobile money debts, which may be charged even three, 4% per month.
8:00
SPEAKER_00: So compounding to around that.
8:02
SPEAKER_00: There is no need of telling that person to buy a bond that will give or take,
8:06
SPEAKER_00: give a yield of about 13% while the person is paying debt of that 6%.
8:11
SPEAKER_00: The best advice is actually to tell that person, work on your debt, pay your debts.
8:17
SPEAKER_00: Actually finishing up your debts will actually get the highest return.
8:20
SPEAKER_00: From there, out of your debts, look at your expenses,
8:24
SPEAKER_00: look at how much you spend in your current lifestyle
8:27
SPEAKER_00: and see how much do you need first to keep aside to sustain you
8:32
SPEAKER_00: for at least six months? So your fund.
8:34
SPEAKER_00: The second one is stability.
8:35
SPEAKER_00: And each bucket has to have different roles.
8:38
SPEAKER_00: So one of the first roles is, let me call it survival and emergency fund.
8:43
SPEAKER_00: The second one is stability.
8:45
SPEAKER_00: The third one is growth but it depends on your age, your goals,
8:49
SPEAKER_00: and your target horizon based on the philosophy I said.
8:52
SPEAKER_00: Give every shilling a date and a limit on how much a lot it can take.
8:57
SPEAKER_00: So for someone with a million, if they have debts, the first thing for me, it's debts.
9:03
SPEAKER_00: The insurance that you are paying is lower than the investments that you are making.
9:07
SPEAKER_00: Secondly, look at also the risk that you can take in terms of losses.
9:12
SPEAKER_00: So emergency fund for me, it's a must.
9:15
SPEAKER_00: Levels can differ depending on your goal.
9:17
SPEAKER_00: And this is just to ensure that if something goes wrong,
9:19
SPEAKER_00: you are able to survive at least let's say four to six months without income coming
9:24
SPEAKER_00: in from the emergency funds.
9:26
SPEAKER_00: Beyond that, now go to growth and that is basically building your portfolio
9:30
SPEAKER_00: into fast, stable, This can include T-bills, T-bonds,
9:35
SPEAKER_00: and such investments that are not too volatile,
9:38
SPEAKER_00: but they have better growth than what you would consider as money markets
9:41
SPEAKER_00: and what we call cash and cash equivalents.
9:44
SPEAKER_00: From there, now we can buy it harder into instruments
9:48
SPEAKER_00: that will maybe give higher returns and can maybe go over time through the ups
9:53
SPEAKER_00: and downs. This can involve securities and even global assets.
9:57
SPEAKER_01: Thank you, Ian. This is a well-explained answer on to where does someone ask?
10:02
SPEAKER_01: And it is not necessarily you need to start by investing.
10:05
SPEAKER_01: So depending on where you are standing financially,
10:07
SPEAKER_01: probably you need to start looking into other things like paying your debt.
10:11
SPEAKER_01: But still on that, I would like to hear Irina's perspective on how important is it
10:15
SPEAKER_01: to separate money that is in different vehicles that Ian has mentioned in some
10:19
SPEAKER_01: of them.
10:20
SPEAKER_01: How is it important to separate this money into these different vehicles according to purpose?
10:25
SPEAKER_02: Thank you.
10:25
SPEAKER_01: That's a great question.
10:27
SPEAKER_02: The first thing that somebody should do is start thinking about what are the needs I have?
10:32
SPEAKER_02: Actually, I like this framework, the Maslow's hierarchy of needs,
10:36
SPEAKER_02: and I talk about it all the time because I think it's a fantastic,
10:38
SPEAKER_02: simplistic way of thinking.
10:42
SPEAKER_02: So if you drew a triangle and instead of the five levels,
10:45
SPEAKER_02: divided that Maslow's triangle into three,
10:48
SPEAKER_02: you would have the bottom part of the triangle that deals with security, safety,
10:54
SPEAKER_02: you know, things like housing.
10:55
SPEAKER_02: Housing, water, Wi-Fi, Wi-Fi is a basic need now, you know, warmth and security.
11:00
SPEAKER_02: So you want to be able to make sure that at any point in time,
11:04
SPEAKER_02: you're protected from any emergency or if things shifted, you can parent,
11:10
SPEAKER_02: you can pick any power and so on.
11:11
SPEAKER_02: Then you go to the next level. What's the need there?
11:13
SPEAKER_02: The need at the second level is for according to Maslow just being able
11:17
SPEAKER_02: to have intimate relationships to enjoy life to find it that life is worth living.
11:22
SPEAKER_02: And what makes life worth living is different for different people.
11:25
SPEAKER_02: For me I want to be able to make sure I have my hair done.
11:27
SPEAKER_02: For someone else they want to do a massage.
11:29
SPEAKER_02: Someone else wants to go on a holiday somewhere.
11:31
SPEAKER_02: You want to take your children to a certain kind of school
11:33
SPEAKER_02: for the foreseeable future.
11:35
SPEAKER_02: And so next level is to make sure I can keep my lifestyle.
11:38
SPEAKER_02: Whatever happens in the market, whatever happens to our country or to the world,
11:43
SPEAKER_02: I can continue to enjoy the things I am doing right now,
11:45
SPEAKER_02: both today and for the foreseeable future.
11:48
SPEAKER_02: Then when you go to the higher level of that Maslow's hierarchy,
11:51
SPEAKER_02: it's about the dreams that you have and things that you want to do.
11:54
SPEAKER_02: And I believe that we were all born and created to do great, amazing things.
11:59
SPEAKER_02: We're not just created to have a house, two cars, You know, have a nice,
12:02
SPEAKER_02: beautiful picket fence and a dog and then die.
12:05
SPEAKER_02: We were created to also have an impact on this world.
12:08
SPEAKER_02: So some of us have dreams about planting trees.
12:11
SPEAKER_02: Others want to educate children.
12:12
SPEAKER_02: Others want to build hospitals and impact in different ways.
12:16
SPEAKER_02: I want to make sure your assets do these three things.
12:19
SPEAKER_02: And I think that Ian called them buckets.
12:21
SPEAKER_02: It fits really well with what he said earlier.
12:23
SPEAKER_02: So the first thing, what do you want to make sure you have safety?
12:26
SPEAKER_02: You have a bucket that is for safety, protecting you against any anxiety, any drop in.
12:31
SPEAKER_02: In living standards because of circumstances that have changed like job loss
12:35
SPEAKER_02: and things like that. The second thing is to make sure that you're stable.
12:38
SPEAKER_02: How do you make sure you're stable?
12:39
SPEAKER_02: Irrespective of what happens in the market, inflation, interest rates fluctuating,
12:43
SPEAKER_02: you're earning a return that compensates you for that inflation.
12:46
SPEAKER_02: Meaning if bread goes up because inflation is at 7% and so tomorrow
12:50
SPEAKER_02: if bread dried now is 100, a year from now it's 107, I can still afford it.
12:54
SPEAKER_02: And then finally you want your assets to give you an opportunity to create real wealth.
12:59
SPEAKER_02: So when you're thinking about assets and how you then allocate around that,
13:04
SPEAKER_02: then you have to look at what can I invest in that gives me safety.
13:08
SPEAKER_02: Not so much maximizing return, but making sure that I'm safe.
13:12
SPEAKER_02: So you think about things like...
13:13
SPEAKER_02: You want to make sure you have an insurance cover.
13:18
SPEAKER_02: It's not necessarily an investment itself, but it's a risk management tool.
13:22
SPEAKER_02: You want to have a home, right?
13:24
SPEAKER_02: And it's not necessarily the dream home, but a home where you are secure and you're safe.
13:28
SPEAKER_02: So that falls under your safety net,
13:30
SPEAKER_02: including things like investing in an education or in a certification
13:34
SPEAKER_02: that gives you more ability to keep your job or more from attracting better clients.
13:40
SPEAKER_02: Now that's the safety net.
13:41
SPEAKER_02: When you go to the next one, we can What I guess Ian called stability.
13:45
SPEAKER_02: You want to make sure that you are investing in a way that irrespective
13:48
SPEAKER_02: of what happens in the market, you're okay.
13:51
SPEAKER_02: So you want to invest above inflation and make sure that you're beating inflation
13:55
SPEAKER_02: and then diversify across things like stock, bonds.
13:58
SPEAKER_02: You can invest in both locally, overseas and so on.
14:02
SPEAKER_02: Then for your dream, now you can go into other more exotic markets.
14:07
SPEAKER_02: Investments that can give you much, much higher return.
14:09
SPEAKER_02: So you can own your own business and keep reinvesting.
14:12
SPEAKER_02: You're earning them into your own business.
14:14
SPEAKER_02: You're taking more risk, but the returns are much higher.
14:17
SPEAKER_02: Or you can invest in someone else's business, what we call private equity.
14:20
SPEAKER_02: Or you can decide, I want to go into angel investing.
14:23
SPEAKER_02: Or you want to go into effect, currency trading.
14:26
SPEAKER_02: Or you want to invest in crypto.
14:28
SPEAKER_02: All of those things fall under the third bucket because you're looking
14:32
SPEAKER_02: for significant growth to be able to fund your aspirational needs.
14:36
SPEAKER_02: The things that you want to be able to do to make an impact.
14:38
SPEAKER_02: So this is sort of how you plan so that then you're not finding that you're young
14:43
SPEAKER_02: or you're old and you're making the wrong investments.
14:46
SPEAKER_02: You're young and you only have money market funds or only have T-bill and you're 30 years old.
14:51
SPEAKER_02: Yet you can take advantage of opportunities that can give you that growth
14:54
SPEAKER_02: that you need as you're investing long term.
14:56
SPEAKER_02: Hope that's clear.
14:57
SPEAKER_01: Yes, that is very much clear.
14:59
SPEAKER_01: But I want to throw Aspana into it a little bit.
15:01
SPEAKER_01: You've painted a very well portfolio and at the base you've mentioned how we need
15:06
SPEAKER_01: to have emergency funds and build a safety net.
15:10
SPEAKER_01: But then from where you're sitting, do you think as Kenyans,
15:13
SPEAKER_01: we are actually building portfolios that have such kind of safety nets.
15:17
SPEAKER_01: And are we really building emergency funds?
15:20
SPEAKER_01: Because we see especially many young people who are making good money nowadays
15:25
SPEAKER_01: and they're leaving for the day.
15:26
SPEAKER_01: And if something wrong happens, especially they lose it all.
15:30
SPEAKER_01: So are we really building emergency funds or are we just chasing returns?
15:34
SPEAKER_01: And if you're not, how serious should we take this thing of we need
15:38
SPEAKER_01: to build emergency funds and safety nets first?
15:41
SPEAKER_00: First, I wanted just to bring in an aspect of how serious are we?
15:45
SPEAKER_00: And I like the way you say the young people, but you'll be shocked.
15:48
SPEAKER_00: If not, it's a cultural thing with all Kenyans.
15:51
SPEAKER_00: It doesn't matter the age.
15:52
SPEAKER_00: And the one thing I want to highlight is the number of Excuse my language,
15:57
SPEAKER_00: Ponzi schemes that we've had in the last five years.
16:00
SPEAKER_00: If you look at just going back to 2022, I won't say the schemes that went down,
16:05
SPEAKER_00: but we had Kenyans, around 11,000 members, lose 1.18 billion in a scheme.
16:11
SPEAKER_00: A new scheme that came, 5,000 investors with $1 bid on.
16:15
SPEAKER_00: Then there is 2024, with people promising up to 30% interest monthly
16:20
SPEAKER_00: through a purported lending and investment activities.
16:23
SPEAKER_00: People lost $350 million in a shilling.
16:26
SPEAKER_00: Then latest, this one I'm sure you have seen it in the last two months,
16:29
SPEAKER_00: about 65,000 deposit was supposed to earn 777 per trade with food trades daily.
16:36
SPEAKER_00: That's what they were promised.
16:38
SPEAKER_00: So we had 12,000 investors who lost over a Billion again in this year.
16:43
SPEAKER_00: So what are we seeing?
16:44
SPEAKER_00: Just what Rina has said, perception has been how much am I getting?
16:48
SPEAKER_00: No one is looking at the downside.
16:50
SPEAKER_00: No one is looking at the risk.
16:51
SPEAKER_00: No one is taking that time to understand even the investment vehicles and the people
16:56
SPEAKER_00: behind the investment.
16:57
SPEAKER_00: I know Rina wanted to take this question,
16:59
SPEAKER_00: but I wanted to highlight what the culture is doing and what we have seen
17:02
SPEAKER_00: in the past.
17:03
SPEAKER_02: I think specifically the challenge I've seen,
17:06
SPEAKER_02: because I deal with very many clients and I'm in many forums
17:09
SPEAKER_02: because I'm very passionate about personal finance.
17:11
SPEAKER_02: And so speaking about personal financial
17:14
SPEAKER_01: management is something that I also do besides my work at FIDA.
17:17
SPEAKER_02: And one of the things I find is the biggest issue is not so much do people have emergency funds.
17:23
SPEAKER_02: I think the biggest issue is not thinking thoroughly.
17:31
SPEAKER_02: You'll find people have all these different investments because they hear it's
17:34
SPEAKER_02: a good idea, but they don't know what it's for.
17:37
SPEAKER_02: They haven't decided and defined what the purpose is for what it is that they are doing.
17:41
SPEAKER_02: And so even if somebody has Money in a money market fund,
17:44
SPEAKER_02: it's not necessarily set aside for emergencies.
17:46
SPEAKER_02: And so they'll go withdraw when they want to take a trip for a destination wedding
17:50
SPEAKER_02: or they will draw it to buy a car or do whatever it is that they want.
17:54
SPEAKER_02: And so it's no done in a methodical manner.
17:56
SPEAKER_02: So that's really the issue too.
17:57
SPEAKER_02: And what I was trying to do with giving that three bucket strategy is to use
18:02
SPEAKER_02: a methodology that would cover all the bases,
18:05
SPEAKER_02: cover you for safety in terms of personal risk of illness,
18:08
SPEAKER_02: personal risk of an accident, personal risk of, you know,
18:11
SPEAKER_02: something happened to you in your house, an emergency that comes.
18:14
SPEAKER_02: That needs to be dealt with immediately.
18:16
SPEAKER_02: That would be catered for by the security bracket.
18:18
SPEAKER_02: Then you have the one that is catering for market risk and then the aspirational.
18:22
SPEAKER_02: So that idea of looking at arranging my assets so that they do those three things is
18:28
SPEAKER_02: a foreign question.
18:29
SPEAKER_02: But it's important that we begin to do that.
18:31
SPEAKER_02: I think also this thing of generally Africans,
18:34
SPEAKER_02: we go to hunt for today's needs and tomorrow will take care of itself.
18:37
SPEAKER_02: And this thing of what an ipigiamuli pole, it needs to stop because tomorrow will come.
18:42
SPEAKER_02: We need to think 10 years from now.
18:44
SPEAKER_02: 20 years from now, what will I be doing?
18:46
SPEAKER_02: You even see employees, you earn $50,000, you work really well, now you earn $250,000.
18:53
SPEAKER_02: And what happens? People don't upgrade.
18:55
SPEAKER_02: They start getting bigger cars, bigger houses, pay higher rent, better schools.
19:00
SPEAKER_02: And so from an asset accumulation or wealth creation perspective, there is hardly any growth.
19:06
SPEAKER_02: What you see is bigger cars in the parking lot, but zero growth in wealth in individuals.
19:11
SPEAKER_02: And so that's why we're doing this so that people can recognize the importance
19:16
SPEAKER_02: of being able to think long term so that then their children
19:20
SPEAKER_02: and their children's children can learn how to build wealth.
19:23
SPEAKER_02: And because we will do that, then our needs.
19:26
SPEAKER_02: The nation will not be going to other countries and borrowing from them.
19:30
SPEAKER_02: Our sovereign debt would be locally financed by investments,
19:34
SPEAKER_02: not so much debt even because Kenyans have sufficient investments and savings
19:37
SPEAKER_02: within the country to finance our own needs or Africa's needs.
19:41
SPEAKER_02: So that's hopefully where I hope to see this nation and the other nations of this continent.
19:47
SPEAKER_02: Thank you.
19:47
SPEAKER_01: Now, speaking of methodologies, I'd like Ian to take this one.
19:52
SPEAKER_01: Now, we jump into portfolio construction.
19:54
SPEAKER_01: So how much should an investor's time horizon influence a portfolio construction?
20:00
SPEAKER_01: And would you construct a portfolio differently for someone who wants
20:03
SPEAKER_01: to invest three years versus for someone who wants to invest for 20 years?
20:08
SPEAKER_01: Let me just paint for us a scenario where two clients come to you.
20:12
SPEAKER_01: One wants to invest for two years and if backing is ideal,
20:15
SPEAKER_01: and another one wants to invest for 20 years.
20:17
SPEAKER_01: How does time horizon influence how you build someone's portfolio?
20:22
SPEAKER_00: I would say time horizon and even age is a starting clue rather than the final decision maker.
20:29
SPEAKER_00: Why? As we look at maybe two years, and I look at it, two years sounds short,
20:35
SPEAKER_00: and so people may be more conservative, but It depends.
20:38
SPEAKER_00: What are you saving for two years?
20:40
SPEAKER_00: Maybe it's a deposit for let's say a house.
20:43
SPEAKER_00: If it's a deposit for a house, in two years, that person needs the deposit to be there.
20:48
SPEAKER_00: They can't wait for it to have downtime.
20:50
SPEAKER_00: So security may be more.
20:53
SPEAKER_00: And you might be looking at what is the best vehicle to prepare the capital
20:58
SPEAKER_00: and maybe just beat inflation more than anything else.
21:01
SPEAKER_00: If you look at someone who's looking at a 25 year horizon,
21:05
SPEAKER_00: this one who based on inflation,
21:08
SPEAKER_00: You have to really protect the value of the money that you are investing
21:12
SPEAKER_00: over that whole period.
21:14
SPEAKER_00: However, this money or this investment has time to go through the normal ups
21:19
SPEAKER_00: and downs of investment.
21:20
SPEAKER_00: So this number that you can do.
21:22
SPEAKER_00: You can see a client being advised to get into stocks
21:25
SPEAKER_00: because stocks will have their ups and downs.
21:28
SPEAKER_00: But over time, you expect in the next five years, 10 years, 15 years,
21:32
SPEAKER_00: most likely they'll continue growing in capital gains and you'll be able
21:37
SPEAKER_00: To withstand and actually delete any downtime that they've had.
21:41
SPEAKER_00: So will the time horizon affect?
21:43
SPEAKER_00: Yes, it will affect.
21:45
SPEAKER_00: How would they look at it in terms of blocks?
21:47
SPEAKER_00: Because I love blocks of the buckets.
21:50
SPEAKER_00: So one, just they had said, we'll We have a bit of cash and money market instruments
21:55
SPEAKER_00: for liquidity. So that's mandatory unless this already has been covered.
21:59
SPEAKER_00: Then we look at government bonds.
22:01
SPEAKER_00: So bonds, corporate bonds, maybe a bit of commercial paper for severe income
22:05
SPEAKER_00: of a fixed deductible.
22:07
SPEAKER_00: Then beyond that, as you look at long-term horizon and taking a bit of more risk,
22:12
SPEAKER_00: that's when you can look at equities.
22:14
SPEAKER_00: So local equities, foreign equities,
22:17
SPEAKER_00: we'd be looking at long-term growth with more ups and downs,
22:20
SPEAKER_00: but because of the duration, you are able It might not give the best returns.
22:24
SPEAKER_00: We have moved away from property.
22:26
SPEAKER_00: You look at very long -term, there is a preservation aspect of property.
22:30
SPEAKER_00: It might not give the best returns you will find maybe majority
22:33
SPEAKER_00: of them having returns over around 5 to 7%,
22:36
SPEAKER_00: ignoring their Appreciation of the properties.
22:38
SPEAKER_00: But in terms of preservation and stability within a family,
22:44
SPEAKER_00: especially where you are not sure of transition, it does play a good part of that.
22:48
SPEAKER_00: Then there are other vehicles that basically like PIS that you have,
22:53
SPEAKER_00: pension schemes, special funds, exchange student funds,
22:56
SPEAKER_00: that are other vehicles that you should understand.
22:58
SPEAKER_00: One of the things I want to emphasize is we have all these vehicles.
23:02
SPEAKER_00: There are very many professional people who can advise you on all these vehicles.
23:06
SPEAKER_00: But remember, the money was earned by the investor, third earned money,
23:11
SPEAKER_00: and no matter what, they should not put all the responsibilities
23:14
SPEAKER_00: to their relationship manager, their financial advisor, or another third party.
23:19
SPEAKER_00: It is our time as investors to take our time and understand these instruments.
23:25
SPEAKER_00: Start from the small building blocks.
23:28
SPEAKER_00: Just understand how to place a deposit, how to buy a key bill,
23:31
SPEAKER_00: how to get into money market funds.
23:33
SPEAKER_00: Then we start building into how...
23:35
SPEAKER_00: Buy and sell government bonds.
23:38
SPEAKER_00: It's their responsibility of investors to learn these different asset classes
23:42
SPEAKER_00: so that they can grow.
23:44
SPEAKER_00: And as they expand more, they invest in instruments.
23:47
SPEAKER_00: They understand both the risk and also how they work.
23:50
SPEAKER_01: Thank you, Jan.
23:51
SPEAKER_01: I would like us to talk about the different types of investments and what they do
23:54
SPEAKER_01: or what role they play into one's portfolio.
23:57
SPEAKER_01: But before we jump into that, I would like Karina to answer Bezo.
24:01
SPEAKER_01: I want to paint two scenarios here.
24:03
SPEAKER_01: Of investors who most of the time we get people who say I earn
24:07
SPEAKER_01: a hundred thousand shillings every month and I have no dependents,
24:10
SPEAKER_01: but I have probably just 300k or around that into savings.
24:14
SPEAKER_01: And then you have this 50 year old who has a family, maybe kids,
24:18
SPEAKER_01: almost And they own land and property.
24:21
SPEAKER_01: As we know, property and land is something Kenyan really, really low.
24:25
SPEAKER_01: That property is probably worth 40, 15 million.
24:27
SPEAKER_01: I'm just trying to paint a scenario here of two different people.
24:31
SPEAKER_01: But this one with land and property has...
24:33
SPEAKER_01: Very little financial investments or even knowledge in that.
24:37
SPEAKER_01: So would you say that the 50-year-old is wealthy and well-financed or diversified
24:43
SPEAKER_01: and this one who is maybe in late 20s or mid 30s is earning a Can you say
24:49
SPEAKER_01: that they are well diversified or they're already stable?
24:54
SPEAKER_01: Can they do something about their portfolio at that age and wealth ,000.
24:58
SPEAKER_01: How would you start obstructing their portfolio?
25:01
SPEAKER_01: And the one with property, can you say that they are well -diversified
25:04
SPEAKER_01: or already stable?
25:06
SPEAKER_01: Can they do something about their portfolio at that age and worth of that amount?
25:11
SPEAKER_02: With the young person, let me first speak generally,
25:12
SPEAKER_02: then I'll go into specifics of these two examples you've shared.
25:16
SPEAKER_02: I think whoever I would sit with,
25:18
SPEAKER_02: whether it's the young person with 100,000 income and 300,000 in savings,
25:22
SPEAKER_02: or the 50-year-old who has land and a property worth 40 million with little
25:26
SPEAKER_02: or few investments, the first question I'd ask is what do you own?
25:31
SPEAKER_02: So sometimes a lot of people forget even what investments they have,
25:35
SPEAKER_02: what assets they have.
25:36
SPEAKER_02: So they might have a savings account, they might turn on money market funds,
25:40
SPEAKER_02: they might help share investment in a circle. So just writing down, what do I own?
25:45
SPEAKER_02: The next thing I'll ask is what do you owe?
25:47
SPEAKER_02: Because this land and property might still be under loan from a bank,
25:51
SPEAKER_02: perhaps these debts that they need to repay.
25:53
SPEAKER_02: So what do you owe?
25:54
SPEAKER_02: And owing is not necessarily only to financial institutions, it's to, you know,
25:58
SPEAKER_02: anybody, including parents.
26:00
SPEAKER_02: Parents, relatives, and everywhere else. Who do I owe? How much do I owe?
26:04
SPEAKER_02: The next thing I would ask is, what do you spend?
26:05
SPEAKER_02: So this 50-year-old or this one earning $100,000, it's nice that you earn $100,000,
26:10
SPEAKER_02: but you might find that they're spending $102 ,000 and so They actually going
26:13
SPEAKER_02: into debt and not able to grow.
26:15
SPEAKER_02: So the next thing is, how much do you spend?
26:17
SPEAKER_02: And knowing and tracking how much I spend and therefore how much I'm able to save
26:22
SPEAKER_02: or put aside towards my investment is important.
26:25
SPEAKER_02: The final question is, what do you earn?
26:27
SPEAKER_02: Especially in this day and age in Kenya with people
26:29
SPEAKER_02: and how they have different income sources, it's important to know how much I earn.
26:34
SPEAKER_02: This is a starting point yet.
26:35
SPEAKER_02: Having clarity around where am I at right now, where those four aspects are concerned.
26:40
SPEAKER_02: The next area then I would ask is, what do you want?
26:42
SPEAKER_02: What are some of the things you're afraid about?
26:44
SPEAKER_02: What are some of the concerns that you have concerning your life?
26:46
SPEAKER_02: What are the goals that you have?
26:48
SPEAKER_02: Because it's really important for us to think through these goals as opposed to living life.
26:52
SPEAKER_02: We wake up, go back to bed.
26:54
SPEAKER_02: You wake up the next day.
26:55
SPEAKER_02: What are some of the things you desire over the next one year,
26:58
SPEAKER_02: over the next three years, over the next five years?
27:00
SPEAKER_02: Now, based on those things, then we now can construct an investment plan based
27:06
SPEAKER_02: on what they desire to have against what they have.
27:10
SPEAKER_02: But beyond that is also their personal circumstances.
27:12
SPEAKER_02: So this one has no dependence.
27:13
SPEAKER_02: I have kids and so on and so.
27:15
SPEAKER_02: So once I have clarity around what assets somebody has, what they owe,
27:19
SPEAKER_02: what they spend, what they earn and where they want to go,
27:22
SPEAKER_02: then it becomes easy to then prioritize. Where do we begin?
27:25
SPEAKER_02: What are some of the things we need to do?
27:27
SPEAKER_02: So for the 50-year-old, for example, who has everything,
27:30
SPEAKER_02: all these assets in London property that he probably lives in,
27:33
SPEAKER_02: eventually they have no meaningful assets.
27:35
SPEAKER_02: They just have a security in a home, which in my book is not an investment.
27:39
SPEAKER_02: And so they need to actually begin and urgently so.
27:42
SPEAKER_02: So the question I would have for them is, what is your income?
27:45
SPEAKER_02: How else can we increase that income so that we start putting aside assets?
27:49
SPEAKER_02: Money for investing and then create a plan that's based on their circumstances.
27:53
SPEAKER_02: So they have kids in school.
27:54
SPEAKER_02: What classes are they in or what level are they in?
27:57
SPEAKER_02: How much is their education and so on?
27:58
SPEAKER_02: Are they their sole breadwinner?
28:00
SPEAKER_02: And therefore, do they need to have some kind of an insurance plan?
28:04
SPEAKER_02: So that if anything happens to them, That's something that they do.
28:07
SPEAKER_02: So just generally, those are the ways that we would go.
28:10
SPEAKER_01: These goals that they would have are also significantly influenced
28:14
SPEAKER_02: by their personal circumstances. Are you single? Are you married? Do you have kids?
28:18
SPEAKER_02: And some may not even have kids, but have other dependents, you know, a cousin,
28:21
SPEAKER_02: a brother, parents, and so on.
28:23
SPEAKER_02: So those things will also inform what else do I need to make sure I...
28:27
SPEAKER_02: But for both of these two, one of the key things that will be important is
28:30
SPEAKER_02: to figure out how can we create investments in our...
28:34
SPEAKER_02: How that can generate a return an income or a return that then covers its expenses
28:40
SPEAKER_02: so that the board can end up
28:45
SPEAKER_02: financially free sometime
28:51
SPEAKER_02: in the future?
28:53
SPEAKER_01: Thank you so much, Rina, for that well-explained professional portfolio construction.
28:58
SPEAKER_01: Now, let's go beyond money market funds, emergency funds, and I would like Ian to take this on.
29:04
SPEAKER_01: So which of these other assets that we should consider or investors should consider
29:09
SPEAKER_01: when it comes to building the portfolios?
29:12
SPEAKER_01: What are some of these assets that are contributing to the building blocks now?
29:16
SPEAKER_01: And tell us, maybe as you mentioned them,
29:19
SPEAKER_01: what role do they play into a portfolio when it comes to growth,
29:23
SPEAKER_01: income or capital or pre-subversion liquidity and all that.
29:27
SPEAKER_01: So that we just understand why we need to have these different asset classes
29:31
SPEAKER_01: or different investments into a portfolio and how helpful they can be
29:36
SPEAKER_01: into a portfolio. And of course, don't fail to mention the special fund
29:39
SPEAKER_01: because I believe Friday Investment Bank has the oak.
29:42
SPEAKER_01: Special fund and special funds have become synonymous as well as we move
29:46
SPEAKER_01: from money market fund.
29:48
SPEAKER_01: So just pinch to ask where the special funds also sit in one's portfolio,
29:53
SPEAKER_01: what is their role in someone's portfolio?
29:56
SPEAKER_00: I'd like to give a bit statistics on what has been
30:02
SPEAKER_00: We have seen a big growth where we were
30:06
SPEAKER_00: at around 58 billion kina shillings by 2018,
30:10
SPEAKER_00: but by now we are just slightly shy of 1 trillion in terms of assets and management
30:15
SPEAKER_00: as a country on The majority of them, if you just move back two years ago,
30:21
SPEAKER_00: majority of the assets were mostly skewed on money markets.
30:25
SPEAKER_00: So especially 2024.
30:27
SPEAKER_00: It had the biggest growth of money markets and you'd find more
30:31
SPEAKER_00: than about 90% was actually in money markets.
30:34
SPEAKER_00: That's where majority of the money was.
30:36
SPEAKER_00: But as we have gone, we have seen peel over to both fixed income and collective investment.
30:45
SPEAKER_00: So we have money markets likely at around 50%, 25% being in fixed income or funds,
30:52
SPEAKER_00: and then special funds taking about 25% to 26% based on the recent figures.
30:57
SPEAKER_00: So where do we need to diversify?
30:59
SPEAKER_00: Which are the other instruments?
31:01
SPEAKER_00: One, we are seeing that we have to grow a diversified portfolio.
31:05
SPEAKER_00: And on a diversified portfolio, as much as we are going to look at various funds,
31:10
SPEAKER_00: we want to look deeper into diversification.
31:12
SPEAKER_00: If I go and take four different money market funds and actually invest in them,
31:18
SPEAKER_00: I'm just switching on the various fund managers,
31:22
SPEAKER_00: most likely not on the inherent or the assets underneath,
31:26
SPEAKER_00: because you'll find The majority of the CIS is as much as they are different.
31:31
SPEAKER_00: The first year results we saw that 41%
31:34
SPEAKER_00: of the assets will be scaling government securities and 24.3% was
31:39
SPEAKER_00: in actually what we call cut and cut equivalent.
31:42
SPEAKER_00: Fixed deposits and call deposits in banks.
31:45
SPEAKER_00: So sometimes we may even diversify within money markets or some of the assets,
31:50
SPEAKER_00: but you are generally investing in the same underlying assets.
31:54
SPEAKER_00: So we will look at the billing block start with the money market.
31:57
SPEAKER_00: Cash and cash equivalents, a direct investment that you can walk into the bank,
32:02
SPEAKER_00: a request for a call deposit, a request for a fixed deposit.
32:05
SPEAKER_00: You can even go to the government or using maybe nowadays, everything is online.
32:11
SPEAKER_00: You can approach CBK.
32:12
SPEAKER_00: And buy a treasury bill down system that is available online.
32:16
SPEAKER_00: All those are the emergency buckets.
32:18
SPEAKER_00: From there, once you want to grow further than that,
32:21
SPEAKER_00: you have to move now to the tidier income bucket.
32:24
SPEAKER_00: And this is where you'd go now to more of the government bonds and credit bonds.
32:29
SPEAKER_00: A bit of commercial paper may also come into it,
32:32
SPEAKER_00: but you have to monetize it because as much as commercial paper,
32:36
SPEAKER_00: these are companies that are choosing to raise money,
32:39
SPEAKER_00: maybe off their balance sheet through the public.
32:42
SPEAKER_00: They might give actually much better return than what we see from the government.
32:47
SPEAKER_00: However, the risk they carry might be actually larger.
32:50
SPEAKER_00: So we are looking at commercial papers having tickets of between 12% to some extreme after 31%.
32:57
SPEAKER_00: But this is your work is to do the due diligence and ensure that it's actually safe.
33:02
SPEAKER_00: Beyond that, now that's when we jump to what I call the third building block, which is equities.
33:08
SPEAKER_00: Equities, if you are especially looking at Kenya, look at the phase where we
33:16
SPEAKER_00: So the equities is where I've said that we'll have to look at it from medium term
33:21
SPEAKER_00: to long term, preferably.
33:22
SPEAKER_00: Unless you're an active trader doing analysis in and out,
33:26
SPEAKER_00: to look at it from medium term to long term.
33:27
SPEAKER_00: Do not invest in equities for one, two, three months.
33:31
SPEAKER_00: You have to invest while you are looking at the long term.
33:33
SPEAKER_00: Ensure you are making the right decision when you are buying,
33:36
SPEAKER_00: not until you are selling to make the right decision.
33:38
SPEAKER_00: Beyond that now, that's why I call the collective investment.
33:42
SPEAKER_00: The other collective investment schemes I'll be looking at,
33:46
SPEAKER_00: I'll merge them from where I went to the second bucket and the third bucket.
33:50
SPEAKER_00: Beyond the money markets, we have the equity funds, we have fixed income funds,
33:55
SPEAKER_00: and we have what we call special funds.
33:57
SPEAKER_00: Majority of them, especially the fixed income and the equity funds,
34:01
SPEAKER_00: it's a fund manager or a portfolio manager,
34:04
SPEAKER_00: basically building a portfolio of equities, building a portfolio of bonds,
34:10
SPEAKER_00: rather than you going to buy each bond individually.
34:12
SPEAKER_00: The good thing about this is there is active monitoring and it removes the stress
34:17
SPEAKER_00: of you monitoring the bond going up, down or what is happening.
34:21
SPEAKER_00: Because these are professionals who are able to react with the market at least
34:25
SPEAKER_00: in time, rather than what you who is not a financial person would rather do.
34:30
SPEAKER_00: Moving from there, that's when you go to the special funds.
34:32
SPEAKER_00: Special funds is a new category, a license in 2023 by the Capital Market Authority.
34:37
SPEAKER_00: And the main thing was to ensure that People who are exploring
34:41
SPEAKER_00: into new asset classes that were not there traditionally,
34:45
SPEAKER_00: so beyond the cash and cash equivalents, the local equities and the local bonds,
34:51
SPEAKER_00: and maybe are looking at U.S. equities, ETFs, derivatives, and the rest.
34:56
SPEAKER_00: They are able to get access into it.
34:58
SPEAKER_00: And these special funds are being run by Proto.
35:01
SPEAKER_00: And being monitored under strict regulations by the CMA trustees.
35:05
SPEAKER_00: And there is also oversight by auditors and the customer.
35:08
SPEAKER_00: For these, this is a bucket that I'll tend to say that North Special Fund is
35:13
SPEAKER_00: the same as the other one.
35:15
SPEAKER_00: People have said that all special funds are risky.
35:17
SPEAKER_00: But as a growth, if you look at all the special funds, they have different philosophies.
35:22
SPEAKER_00: They have different ambitions.
35:24
SPEAKER_00: Some may have tentatively the same exposures, but they are a lot different.
35:29
SPEAKER_00: Their leverage may be different.
35:31
SPEAKER_00: And also the strategies beyond now what you see in terms
35:36
SPEAKER_00: of governance may actually make them differ.
35:39
SPEAKER_00: So I wouldn't group them.
35:40
SPEAKER_00: All special funds being risky or being non-risky,
35:44
SPEAKER_00: but inherently they might be a bit, obviously as compared to money markets,
35:48
SPEAKER_00: they may take more risk than the money market instrument,
35:52
SPEAKER_00: but what they do is they try to balance by rebalancing policies.
35:56
SPEAKER_00: So what your funds come to replace is if there is a market that you've invested
36:01
SPEAKER_00: in and it is turning bearish,
36:03
SPEAKER_00: they are able to redeploy that funds by selling those assets and deploying
36:07
SPEAKER_00: to other asset classes.
36:09
SPEAKER_00: So assuming you have a bullish If that one is failing,
36:13
SPEAKER_00: they type 10 and redeploy that money to euro bonds.
36:16
SPEAKER_00: If euro bonds is not the best instrument from there,
36:19
SPEAKER_00: they can take and go to a safe haven, let's say gold,
36:22
SPEAKER_00: and hold that or another commodity.
36:24
SPEAKER_00: That is the space that Special funds comes in quickly.
36:27
SPEAKER_00: And I would say that with special funds, just look at the fact sheets,
36:31
SPEAKER_00: look at the information memorandum.
36:33
SPEAKER_00: These are documents that should be available for you to literally understand what they do.
36:37
SPEAKER_00: But the good thing about all these special funds is...
36:40
SPEAKER_00: I know I may have spoken a lot of investment jargon
36:44
SPEAKER_00: that not everyone understands options, not everyone understands features,
36:48
SPEAKER_00: but you want to participate, benefit from it through professionals.
36:51
SPEAKER_00: And that is where to put your money.
36:53
SPEAKER_00: So this is not to put all your money.
36:55
SPEAKER_00: Remember, you said first, security, liquidity, then from there now you are looking for growth.
37:02
SPEAKER_00: When you are looking for growth, that's when you go to equities,
37:05
SPEAKER_00: you go to now the more aggressive, let me call them collective investment schemes,
37:09
SPEAKER_00: including special. Funds including equity funds.
37:13
SPEAKER_00: And now there is also what you cannot escape because sometimes it
37:16
SPEAKER_00: through regulations will have to also invest in pension schemes.
37:20
SPEAKER_00: Most employed people indirectly,
37:22
SPEAKER_00: they have to get into pension schemes and also government employees.
37:25
SPEAKER_00: Also, as an individual, it's good to also invest for your future years.
37:31
SPEAKER_00: So those are the buckets I wanted to speak about.
37:33
SPEAKER_00: I hope I've covered everything that was missed.
37:35
SPEAKER_01: Yeah, thank you so much. I've covered almost all of them.
37:37
SPEAKER_01: And I still want to talk about equities and I think Karina can So many Kenyans,
37:42
SPEAKER_01: not just individual investors, but probably also institutional investors,
37:47
SPEAKER_01: they tend to see equities or other shares as an extremely risky or risky kind
37:51
SPEAKER_01: of investments, and they shy away from it. But then Ian has always said,
37:55
SPEAKER_01: Also make sure to ask about equity funds and then we have fixed income funds.
37:59
SPEAKER_01: So is it prudent for someone to have individual equities in their portfolios
38:04
SPEAKER_01: and also go into equity funds?
38:06
SPEAKER_01: And also when it comes to fixed income,
38:08
SPEAKER_01: to have fixed income funds in their portfolio and they can also go
38:13
SPEAKER_01: for Buying bonds individually,
38:15
SPEAKER_01: would you advise someone to do that or rather what balance can they find
38:20
SPEAKER_01: when it comes to going for the funds,
38:22
SPEAKER_01: but there's individual investment and I should really shy away from equities.
38:26
SPEAKER_01: Again we have these lot of individuals also who see equity as a way
38:31
SPEAKER_01: of making quick money because we've seen For the past one year plus,
38:35
SPEAKER_01: where the NSE has done really well and we have some counters
38:38
SPEAKER_01: which have given people very good returns.
38:40
SPEAKER_01: So there are people who say that and they want to jump into equity just to make quick money.
38:46
SPEAKER_01: What kind of guidance or advice would you tell the listeners?
38:50
SPEAKER_01: How to go about individual equity allocations and to go for the funds?
38:56
SPEAKER_02: Thank you so much. I think that equities are a fantastic investment opportunity.
39:00
SPEAKER_02: They really are.
39:01
SPEAKER_02: In fact, one of the things about equities is the fact that over time,
39:05
SPEAKER_02: they would typically beat a lot of these other investments, but there's risk.
39:11
SPEAKER_02: So between going into single stock yourself or getting into a fund,
39:16
SPEAKER_02: whether that is Inequities or also with fixed income depends on certain things.
39:21
SPEAKER_02: One of the things is, are you the kind of an investor that have the time, energy,
39:26
SPEAKER_02: knowledge to then evaluate opportunities yourself?
39:30
SPEAKER_02: So I think this is a question that everybody needs to answer for themselves.
39:33
SPEAKER_02: Do I have the time and the energy, for example,
39:36
SPEAKER_02: to make a decision on which share to buy, when to sell, keep track?
39:40
SPEAKER_02: Because when you invest in the stock market,
39:42
SPEAKER_02: you can't sort of just forget about it for three years and then come back.
39:45
SPEAKER_02: You also need to know How is my company performing?
39:48
SPEAKER_02: Was my dividend paid?
39:49
SPEAKER_02: Have you received your dividend or not?
39:51
SPEAKER_02: Is performance still going up or down?
39:54
SPEAKER_02: Basically understanding how companies are performing so that then you can make
39:57
SPEAKER_02: an informed decision whether to continue to hold, whether to sell,
40:00
SPEAKER_02: whether to accumulate more and so on.
40:02
SPEAKER_02: So are equities a good investment?
40:04
SPEAKER_02: Absolutely, yes.
40:05
SPEAKER_02: Both local and overseas.
40:06
SPEAKER_02: However, you don't put money that you will need in two weeks.
40:10
SPEAKER_02: Or even in the six months.
40:12
SPEAKER_02: Stock or equities are for money that you will not need for five years.
40:16
SPEAKER_02: That is what is advised.
40:17
SPEAKER_02: If in two weeks you make money, absolutely go and sell.
40:20
SPEAKER_02: But if you know you will need that money within a fairly short period of time,
40:24
SPEAKER_02: I would not encourage you to go into equities.
40:26
SPEAKER_02: Now, buying equity and then buying an equity fund, is anything wrong with that?
40:32
SPEAKER_02: I think no. I mean, the question is, what's the purpose?
40:34
SPEAKER_02: You might want to decide to buy a certain stock because you feel
40:37
SPEAKER_02: that that stock is Forming well is a company that you like.
40:41
SPEAKER_02: You can go ahead and invest and then know that as you invest in an equity fund,
40:45
SPEAKER_02: really you are a little more diversified, but within the same asset class.
40:50
SPEAKER_02: And so you're only diversified across companies within the same asset class.
40:54
SPEAKER_02: And just knowing that is important,
40:56
SPEAKER_02: but there's nothing wrong with going into a fund and going into the single stock
40:59
SPEAKER_02: or assets itself.
41:01
SPEAKER_01: So please don't buy because others are buying.
41:04
SPEAKER_02: And it sounds like it's a good idea because others are doing it.
41:07
SPEAKER_02: Take time to understand what company am I investing in?
41:09
SPEAKER_02: Do I understand this company?
41:10
SPEAKER_02: Do I think there's potential for it to grow?
41:12
SPEAKER_02: Understand who is behind this company?
41:15
SPEAKER_02: What's the board like?
41:16
SPEAKER_02: How is the company performing against its competitors?
41:18
SPEAKER_02: Are they growing?
41:19
SPEAKER_02: Is revenue increasing or is it stagnant?
41:22
SPEAKER_02: Is there a future potential growth for this company?
41:24
SPEAKER_02: What strategy are they in?
41:25
SPEAKER_02: It takes a little bit of work to invest.
41:27
SPEAKER_02: And so Don't invest if you don't understand the company that you're going to invest in.
41:33
SPEAKER_02: So also don't invest based on the past two years,
41:37
SPEAKER_02: because when you look at 2024 to date, actually between 2024 and 2025,
41:43
SPEAKER_02: I think the Kenyan stock market grew like 50%.
41:45
SPEAKER_02: And so by seeing that kind of a growth and you're like, I want to buy shares,
41:49
SPEAKER_02: then you make a decision to buy shares in 2026, January.
41:52
SPEAKER_02: Now you're struggling because the stock market has come down and then now you say oh
41:56
SPEAKER_02: the stop market doesn't work.
41:57
SPEAKER_02: Have a long -term view when it comes to the stop market I'll just repeat that again
42:01
SPEAKER_02: because when you have a long term view then the cycles of up and down are not
42:06
SPEAKER_02: an issue it's just important to understand there is volatility
42:08
SPEAKER_02: and volatility is like if you're driving to Mombasa these bumps
42:13
SPEAKER_02: on the road these potholes and so it's up and down
42:15
SPEAKER_02: but when you're facing significant risk It means you don't make it to Mombasa.
42:19
SPEAKER_02: You've made a loss, so volatility is part of investing
42:21
SPEAKER_02: and when you see markets go up and go down, it's OK.
42:24
SPEAKER_02: But over the long term, as long as you're investing in a company that is solid.
42:28
SPEAKER_02: And it's doing well, then you will be fine.
42:30
SPEAKER_02: So I think what am I saying?
42:32
SPEAKER_02: As long as your diverse feds,
42:33
SPEAKER_02: you understand the purpose for why you're investing in that asset class.
42:36
SPEAKER_02: If it equities, you know why but also understands which stock If you're the kind
42:40
SPEAKER_02: of investor that doesn't want to do the work, then you can get into a fund.
42:44
SPEAKER_02: But also understand that even with funds, the way that fund managers invest is different.
42:50
SPEAKER_02: So understanding each fund manager's fund is important.
42:54
SPEAKER_02: Sit with them.
42:55
SPEAKER_02: Look at the investment policy document or the information memorandum.
42:58
SPEAKER_02: Because you'll find in Kenya, we have a structure with our fund,
43:02
SPEAKER_02: particularly with equity investing.
43:04
SPEAKER_02: Where particularly for like now, those that have trustees that make decisions,
43:09
SPEAKER_02: they tend to be short term.
43:10
SPEAKER_02: And so sometimes some funds can end up investing in a manner that is not
43:15
SPEAKER_02: for the benefit of a long term investor, short term minded.
43:18
SPEAKER_02: And so they make decisions short term.
43:20
SPEAKER_02: So look into that as well before you decide to go into funds.
43:22
SPEAKER_02: I think a better idea for me, if I'm to make that kind of a decision,
43:26
SPEAKER_02: is to go into ETFs that are spread across a wider market.
43:29
SPEAKER_02: It's sort of Less active investing in equity because it's difficult to pick all
43:34
SPEAKER_02: the time and pick winners all the time.
43:35
SPEAKER_02: ETFs are a better way to go, but that's my personal opinion.
43:39
SPEAKER_01: Thank you so much. I actually also believe ETFs are pretty good because the question
43:44
SPEAKER_01: of which particular share do I go for?
43:45
SPEAKER_01: And I'm happy that any city are also beginning to see more ETFs coming up.
43:50
SPEAKER_01: Now to Ian, when we say investments are risky, what exactly are we talking about?
43:55
SPEAKER_01: What kind of risks do investors need to understand or know before they go
44:00
SPEAKER_01: into any particular investment in terms of volatility market?
44:04
SPEAKER_01: Just give us a brief on what kind of risks do investors need to look at and understand?
44:09
SPEAKER_00: So when we say investments are risky, what are we looking at?
44:12
SPEAKER_00: We are looking at a loss of value that you can get from the money that you've put in.
44:17
SPEAKER_00: It can be that. That is number one.
44:19
SPEAKER_00: Two, liquidity.
44:20
SPEAKER_00: We have had issues of where people have put money and they've tried to get
44:24
SPEAKER_00: the money out and it has been stopped.
44:27
SPEAKER_00: So liquidity access also.
44:30
SPEAKER_00: Let me say valuations.
44:32
SPEAKER_00: When you see any valuations on wherever you've put your money, is that the true valuations?
44:37
SPEAKER_00: Are you able to withdraw that money and get that money with you?
44:41
SPEAKER_00: Also, what is the volatility of the asset or the investment that you're putting?
44:46
SPEAKER_00: Majority of the times, we always have,
44:48
SPEAKER_00: and this is a requirement by Capital Market Authority,
44:51
SPEAKER_00: we are warned that past performance is not a guarantee of future performance.
44:55
SPEAKER_00: So can we look at the volatility and what has happened in the past?
45:00
SPEAKER_00: Try to predict what's the worst that can happen with the investment you are getting in.
45:05
SPEAKER_00: So if I may give a good example,
45:07
SPEAKER_00: let me look at risks in terms of even the main thing we discussed
45:11
SPEAKER_00: about money market. Money markets generally and how they've been structured.
45:15
SPEAKER_00: And I'll say this, they are meant to be almost tending to mimic what we have
45:22
SPEAKER_00: in interest rates and generally to be quite safe.
45:25
SPEAKER_00: But we have noticed that if you look at the various money market products we have
45:29
SPEAKER_00: and you look Some of them just to make sure that we have higher returns,
45:34
SPEAKER_00: you'll find that maybe they might be more skewed to riskier,
45:38
SPEAKER_00: let me say short -term investments, including commercial papers.
45:42
SPEAKER_00: There is nothing wrong with commercial papers but obviously we have to look
45:45
SPEAKER_00: at which commercial papers So you'll find that people
45:50
SPEAKER_00: who can raise money quite well will even offer.
45:54
SPEAKER_00: We have very solid names that are giving out commercial papers at around 12 .5 %
45:59
SPEAKER_00: to around 16%,
46:00
SPEAKER_00: but you'll find even others raising them up to 31 % % to all clients
46:07
SPEAKER_00: so that they can be able to raise funds.
46:09
SPEAKER_00: But how safe is this money?
46:11
SPEAKER_00: So some of us may be thinking that,
46:13
SPEAKER_00: yes you are in a Money Market Fund it should be safe.
46:15
SPEAKER_00: It would be okay and as far as everyone is not out,
46:19
SPEAKER_00: we are still safe but if everyone wants to withdraw will it be safe?
46:23
SPEAKER_00: So this let me think a dynamic thing that should be looked at holistically
46:28
SPEAKER_00: on every instrument and not giving a blanket that, just the way I said,
46:33
SPEAKER_00: do not say all special funds are risky, all money markets funds are safe.
46:38
SPEAKER_00: You have to look at the constituents or the asset classes within the funds
46:42
SPEAKER_00: and how they are managed and how risk is even observed in the various funds
46:46
SPEAKER_00: that you have.
46:47
SPEAKER_01: Now, still risk, these two terms that are normally used interchangeably,
46:51
SPEAKER_01: that is risk appetite and risk capacity.
46:54
SPEAKER_01: So, Irina, tell us what's the difference between risk capacity and risk appetite.
46:59
SPEAKER_01: And as you speak about that, then we also have investors or other individuals who...
47:05
SPEAKER_01: A bit conservative and they lean more towards real estate and they probably see
47:10
SPEAKER_01: the more of a wealth building asset.
47:13
SPEAKER_01: I don't know if it's a Kenyan or rather an African thing where we love having
47:17
SPEAKER_01: the tangible assets that you can touch and see.
47:20
SPEAKER_01: So most of them lean towards that, maybe they're a bit more conservative.
47:25
SPEAKER_01: So as you talk about risk capacity versus risk returns.
47:30
SPEAKER_01: So can someone actually be overexposed into property?
47:34
SPEAKER_01: And because probably they have a good violation of their property,
47:37
SPEAKER_01: they have the capacity, if that's a good word to use, to take in more risk,
47:42
SPEAKER_01: but they are a bit conservative.
47:44
SPEAKER_01: So would you say this person is overexposed to property?
47:48
SPEAKER_01: Would you advise them otherwise?
47:50
SPEAKER_01: Because probably they can afford to go into other investments.
47:54
SPEAKER_01: So just to talk about that.
47:56
SPEAKER_02: With your first question around risk appetite and risk capacity. Okay.
48:00
SPEAKER_02: So let me just remove the technical aspects around that.
48:04
SPEAKER_02: So when you have risk appetite, it means I want to take risks. Yeah.
48:08
SPEAKER_02: I like to take risks.
48:10
SPEAKER_02: If I don't have capacity, it means I don't have the ability to take this.
48:13
SPEAKER_02: So let me give you an example. Let me use myself.
48:16
SPEAKER_02: I've always been an adrenaline junkie.
48:18
SPEAKER_02: I've bungee jumped.
48:19
SPEAKER_02: I have gone skydiving.
48:20
SPEAKER_02: Like I will jump off a plane.
48:22
SPEAKER_02: I'm generally a risk taker because I have a high risk appetite,
48:25
SPEAKER_02: meaning I don't mind taking risk. So...
48:28
SPEAKER_02: Do I have a high risk appetite? Yes, I do.
48:31
SPEAKER_02: But then some circumstances changed in my life.
48:33
SPEAKER_02: I became a mother.
48:35
SPEAKER_02: I grew up and became over 40.
48:36
SPEAKER_02: And then now, despite the fact that I'd like to enter a plane and go gliding
48:40
SPEAKER_02: or jump off another cliff and go up sailing from I don't know which cliff
48:44
SPEAKER_02: in the world, I can't do those things anymore because my ability is limited
48:49
SPEAKER_02: by the circumstances that I have.
48:51
SPEAKER_02: So do I have a risk appetite even now?
48:53
SPEAKER_02: Yes, I do.
48:54
SPEAKER_02: But do I still have the capacity or the ability to keep taking on that tree? No.
48:59
SPEAKER_02: Why? My circumstances have changed.
49:02
SPEAKER_02: And the reason that my circumstances have a play around that is because a loss
49:06
SPEAKER_02: at a later date for me has significant consequences.
49:10
SPEAKER_02: If I get injured, it will take me longer to recover.
49:13
SPEAKER_02: Or my children need me. I have a husband.
49:15
SPEAKER_02: So those are things that I have to take into consideration.
49:17
SPEAKER_02: Whereas when I was single, then I had a high risk appetite and a high ability to take risk.
49:22
SPEAKER_02: So that's really the difference.
49:23
SPEAKER_02: So now let's move to investment.
49:25
SPEAKER_02: How should someone figure this out?
49:27
SPEAKER_02: I think age is a factor.
49:30
SPEAKER_02: Your personal circumstances around how much you earn,
49:33
SPEAKER_02: what you have in terms of your assets is important.
49:35
SPEAKER_02: Do you have any debt?
49:36
SPEAKER_02: How much do you have in your wealth?
49:38
SPEAKER_02: So that it governs how much you can actually lose.
49:42
SPEAKER_02: How well invested are you?
49:44
SPEAKER_02: Issues around the level of income that you have and the flexibility then that gives you.
49:49
SPEAKER_02: So your personal circumstances are very important in considering your ability to take risk.
49:54
SPEAKER_02: So failure to do that then becomes a big issue.
49:57
SPEAKER_02: Now, your other question around being conservative and therefore taking real estate
50:01
SPEAKER_02: as an opportunity, you know, it's not necessarily about ability to take on risk.
50:05
SPEAKER_02: I think perhaps it's more somebody is more comfortable.
50:09
SPEAKER_02: With real estate because that's what they understand. And that's okay.
50:11
SPEAKER_02: I think even within real estate, we have very many asset classes, by the way,
50:16
SPEAKER_02: within real estate.
50:17
SPEAKER_02: But you have to ensure, again,
50:19
SPEAKER_02: if we just go back to the asset allocation that we discussed earlier,
50:22
SPEAKER_02: how are the needs that you have that are real needs being taken care
50:27
SPEAKER_02: of by these real estate investments that you have?
50:30
SPEAKER_02: If you need cash quickly, are you able to get it?
50:33
SPEAKER_02: What kind of cash do you need?
50:34
SPEAKER_02: For an emergency, do you have at least three to six months of cash flow available to you?
50:40
SPEAKER_02: Should something happen that impacts your ability to get an income right now?
50:46
SPEAKER_02: And would the real estate investments that you have be able to cover that?
50:49
SPEAKER_02: Maybe not, because liquidating is difficult.
50:53
SPEAKER_02: And for base rates?
50:54
SPEAKER_02: Even within real estate.
50:56
SPEAKER_02: So I think you would need to sit down and ask yourself, okay,
50:58
SPEAKER_02: am I sufficiently covered for my safety net?
51:01
SPEAKER_02: And the safety net would be things like, do I have a home?
51:04
SPEAKER_02: I have expenses in that home.
51:05
SPEAKER_02: Are they sufficiently covered?
51:06
SPEAKER_02: I have children going to school.
51:08
SPEAKER_02: Do I have insurance for my health, life insurance?
51:11
SPEAKER_02: Maybe I need keyman insurance for somebody who is in my business that is
51:15
SPEAKER_02: a very high capacity person.
51:16
SPEAKER_02: So when you look at your safety net and you're covered, then you You're fine.
51:20
SPEAKER_02: But if you look at it and you're like, oh, I'm deficient in my health cover.
51:24
SPEAKER_02: I think I need a bigger health cover or I need to add X, Y, Z.
51:28
SPEAKER_02: Then you can go ahead and do that.
51:30
SPEAKER_02: So then you're not looking at real estate as your answer to everything,
51:33
SPEAKER_02: but looking at where do I need to make a change?
51:36
SPEAKER_02: I think this thing about looking at the way to then invest is the wrong way to look at it.
51:42
SPEAKER_02: You need to start with what is the need and the purpose I have?
51:46
SPEAKER_02: And therefore, you'll find even an older person having to take a little bit of risk
51:51
SPEAKER_02: because they want to be able to grow their money.
51:53
SPEAKER_02: And so that's the approach I would seek.
51:55
SPEAKER_02: Then this person who's uncomfortable with doing anything else other than real estate
51:59
SPEAKER_02: for wealth building will be like, OK,
52:01
SPEAKER_02: so if the real estate market doesn't work or if I only have rentals and there's
52:05
SPEAKER_02: an issue, there's a flood and block of apartments or houses gets impacted,
52:10
SPEAKER_02: what will I do?
52:11
SPEAKER_02: So you look at, okay, what could potentially happen and where will I be able
52:15
SPEAKER_02: to get additional income from or other opportunities that can sort me out
52:19
SPEAKER_02: if this real estate I'm investing in doesn't work out.
52:22
SPEAKER_02: And so that's what I would say.
52:24
SPEAKER_02: Look at the different buckets and make sure that you're covered
52:27
SPEAKER_02: where safety is concerned, the market risk is concerned,
52:30
SPEAKER_02: and of course the dream that you have to be able to grow significant wealth.
52:33
SPEAKER_01: Thank you, Rina. It's actually fascinating to hear that there is...
52:37
SPEAKER_01: Appetite can remain the same, but the capacity changes depending on various aspects.
52:43
SPEAKER_01: Now back to you, Ian.
52:45
SPEAKER_01: So we have this question, don't put your eggs in one bit.
52:49
SPEAKER_01: But what does proper diversification actually look like?
52:52
SPEAKER_01: What is good diversification
52:56
SPEAKER_01: and can someone over diversify their portfolio?
53:00
SPEAKER_01: That is, you have too many assets either in one sector or different sectors.
53:04
SPEAKER_01: That's too much or how much is too much diversification?
53:07
SPEAKER_01: And how often should investors inhale or rebalance their portfolios?
53:12
SPEAKER_00: First, I would want to add on to the thing.
53:15
SPEAKER_00: I don't have the exact word, but they say, yes,
53:17
SPEAKER_00: don't put all your eggs in one basket,
53:19
SPEAKER_00: but if you can put all your eggs in one basket and really What's that basket?
53:23
SPEAKER_00: There's nothing wrong with that.
53:24
SPEAKER_00: So in other words, you can be very much diversified,
53:28
SPEAKER_00: but you're not monitoring any of those baskets.
53:31
SPEAKER_00: So those baskets are being monitored by other people.
53:34
SPEAKER_00: At the end of it, you actually lose everything.
53:36
SPEAKER_00: Going back to the point, how do you diversify?
53:39
SPEAKER_00: And there's one thing I keep on stressing.
53:42
SPEAKER_00: Education, education, education.
53:44
SPEAKER_00: You want to diversify.
53:46
SPEAKER_00: You want to invest, let's say, in an ETF.
53:49
SPEAKER_00: Because an ETF, you'll find maybe it's diversified. It's big.
53:52
SPEAKER_00: You are delegating the management of your money to other people,
53:56
SPEAKER_00: which is very okay because they are professionals.
53:58
SPEAKER_00: However, what you are saying is if you start investing at 25 or let's say even at 30
54:03
SPEAKER_00: and you invest in ETFs, no problem with that.
54:07
SPEAKER_00: But can you start learning about the ETFs?
54:10
SPEAKER_00: Can you start learning about the underlying instruments?
54:12
SPEAKER_00: Can you start learning about investing?
54:14
SPEAKER_00: So we are saying, let me give an example.
54:16
SPEAKER_00: So you choose, you want an ETF maybe or an index maybe for the NSE.
54:22
SPEAKER_00: So you invest and you close your eyes, but go and start learning.
54:26
SPEAKER_00: How do you invest in stocks? How can I invest?
54:28
SPEAKER_00: A very small portion, maybe about 5% or 3% of that instead of delegating,
54:34
SPEAKER_00: try to buy a stock, sell it, see See the process, see the charges, see how it runs.
54:39
SPEAKER_00: Go to a DAO system, be able to bid for a bond, buy it,
54:43
SPEAKER_00: be able to sell depending if you are able to sell.
54:46
SPEAKER_00: See the challenges that maybe are not foreseen from this value so that you learn.
54:51
SPEAKER_00: That way, as much as we are discussing about diversifying,
54:54
SPEAKER_00: you'll be able to understand what parameters go into it.
54:58
SPEAKER_00: Is there a portfolio that is too much diversified?
55:00
SPEAKER_00: The thing about diversification,
55:02
SPEAKER_00: and that's what I said about investing in three MMS or maybe deciding I'm going
55:08
SPEAKER_00: to buy into an MMS.
55:10
SPEAKER_00: I'm going to buy into a fixed income fund, and I'm going to buy into a special fund.
55:14
SPEAKER_00: I just said that 43% of the actually first half of this year,
55:18
SPEAKER_00: we had out of the CISs that we had,
55:21
SPEAKER_00: I think It was around 890 billion Kenyan shillings.
55:25
SPEAKER_00: About 40% was literally invested in fixed income instruments, basically Kenyan.
55:31
SPEAKER_00: So Kenyan government bonds, and they had about 24 or 23% invested
55:36
SPEAKER_00: in such Sometimes we think we are over-diversified,
55:40
SPEAKER_00: but the inherent instruments are still the same.
55:43
SPEAKER_00: And that brings me to the point of, we have to educate ourselves.
55:48
SPEAKER_00: We have to be able to read and understand a fact sheet.
55:51
SPEAKER_00: So we need to understand the asset classes.
55:54
SPEAKER_00: And so by the time we are also investing and diversifying,
55:58
SPEAKER_00: there's what we call correlation risk.
56:00
SPEAKER_00: Correlation risk is the issue whereby even if we invested in 10 different asset classes.
56:05
SPEAKER_00: Let me give some instruments and examples.
56:08
SPEAKER_00: In currencies, you'll say you bought Euro against the USD,
56:12
SPEAKER_00: you bought Aussie against the USD ,and maybe the standing pound
56:16
SPEAKER_00: against USD Essentially, we say that in technical terms you are shorting the USD.
56:22
SPEAKER_00: In all this. So anything that maybe raises the USD will actually drop all this.
56:28
SPEAKER_00: So it looks like you've diversified,
56:30
SPEAKER_00: but basically you're betting against one instrument, which is the USD.
56:34
SPEAKER_00: And that's why I'm saying at the end of it.
56:36
SPEAKER_00: With education, education is the core to understand these assets
56:40
SPEAKER_00: that you've invested in correlated.
56:43
SPEAKER_00: How divergent are they?
56:44
SPEAKER_00: And can you measure this?
56:46
SPEAKER_00: If you can measure and you can see it maybe backtest a year, six months,
56:50
SPEAKER_00: or even two years back and see how different returns would be for each instrument
56:56
SPEAKER_00: under different circumstances,
56:58
SPEAKER_00: you can now justify and say that you have diversified your portfolio. Thank you.
57:02
SPEAKER_01: Thank you, Ian.
57:03
SPEAKER_01: Now, just before we go into closing the spaces, Rina,
57:07
SPEAKER_01: I would like to talk to us
57:09
SPEAKER_01: because you say you meet different clients almost every day during your work
57:14
SPEAKER_01: and we can construct a perfect portfolio for a client,
57:17
SPEAKER_01: but you still None of these individuals, I believe that they are,
57:19
SPEAKER_01: who seem to panic when the market goes down or they fail when the market falls
57:25
SPEAKER_01: or chase whatever is currently performing.
57:27
SPEAKER_01: So how much will we invest according to you or according to your experience over time?
57:32
SPEAKER_01: And over the years as you speak to different How much
57:35
SPEAKER_01: of investment success is actually behavioural?
57:38
SPEAKER_01: Because I believe when it comes to investment,
57:40
SPEAKER_01: we are also inclined on how we think about money or how we react to the market.
57:45
SPEAKER_01: How much of weight do you think is behavioral?
57:48
SPEAKER_01: And if someone finds themselves reacting to markets
57:52
SPEAKER_01: without probably proper professional guidance, what would you advise them?
57:57
SPEAKER_02: When I look at how we behave and what happens with a lot of retail investors,
58:02
SPEAKER_02: I find that actually most of investing is behavioral.
58:05
SPEAKER_02: So people will decide when to invest based on what's happening around them.
58:10
SPEAKER_02: They don't follow a certain pattern.
58:12
SPEAKER_02: They don't follow a formula.
58:14
SPEAKER_02: What are people thinking?
58:15
SPEAKER_02: They'll chase returns.
58:16
SPEAKER_02: They'll think, oh, which one is the best?
58:18
SPEAKER_02: Now they'll ignore fees, they'll ignore tax.
58:20
SPEAKER_02: They'll look at, oh, my friend is investing in land in, I don't know, Nanyuki now.
58:25
SPEAKER_02: And then go in that direction.
58:26
SPEAKER_02: Now, the truth is that the best portfolio that you can create for yourself is
58:31
SPEAKER_02: the one that you can continue with long-term as a plan, right?
58:35
SPEAKER_02: So it's not the one that you will abandon when we have a bad month.
58:39
SPEAKER_02: So for example, you find you invested in equities.
58:43
SPEAKER_02: Like the other day, just remembered, I bought a certain stock.
58:46
SPEAKER_02: I'll not see which one.
58:47
SPEAKER_02: And it wasn't a long time ago and it's a very good company.
58:50
SPEAKER_02: Like it's a company I want to keep and I want to keep accumulating.
58:53
SPEAKER_02: And then the market just turned and I was like, oh my goodness.
58:58
SPEAKER_02: But I was so grateful because now I have a good
59:01
SPEAKER_01: brain on my head and I tried and go
59:04
SPEAKER_02: against my behavior and my immediate reaction is to sort of say, okay,
59:08
SPEAKER_02: we've had a correction in the market.
59:10
SPEAKER_02: Let me add more because I made a good decision with this stock.
59:14
SPEAKER_02: So where you will make a decision on a certain investment plan and you won't abandon
59:20
SPEAKER_02: that plan in a bad month.
59:21
SPEAKER_02: So when you have a strategy and you're like, okay, This is for this,
59:25
SPEAKER_02: this is for the other, and I'll continue to increase it until this happens
59:28
SPEAKER_02: and you have a clear plan.
59:29
SPEAKER_02: Then you won't have to sell when the markets have gone down because you know what your plan is.
59:34
SPEAKER_02: So investment success generally, I think is not about the perfect product or the perfect asset.
59:39
SPEAKER_02: It's more about just this plan that you can continue following when markets go up,
59:43
SPEAKER_02: when headlines are scary, when you're feeling uncomfortable and afraid
59:47
SPEAKER_02: about what's going on, and just being consistent.
59:49
SPEAKER_02: And truly, when I look at the clients I've dealt with, both young and old,
59:54
SPEAKER_02: those Those who have grown their wealth are those who are fairly consistent
59:57
SPEAKER_02: over long periods of time and having some amount of money that is coming in for them
1:00:03
SPEAKER_02: that they choose to put aside some of that amount consistently over time.
1:00:07
SPEAKER_02: So my advice is just have a written plan.
1:00:10
SPEAKER_02: Sit with somebody who understands financial markets, who understands how to invest.
1:00:15
SPEAKER_02: Have an accountability partner.
1:00:17
SPEAKER_02: Review it maybe perhaps twice a year or maybe when your life circumstances change,
1:00:21
SPEAKER_02: but have a goal.
1:00:22
SPEAKER_02: And have somebody who walks that journey with you,
1:00:24
SPEAKER_02: who you can check in with every six months that then can help you move
1:00:27
SPEAKER_02: from being reactionary when things are happening to being more strategic
1:00:32
SPEAKER_02: and not making decisions in a whim.
1:00:35
SPEAKER_01: Thank you, Rina, for that.
1:00:36
SPEAKER_01: It's good to know that emotions also affect professionals.
1:00:39
SPEAKER_01: Now, as we close, I would like Ian to just give us closing remarks
1:00:43
SPEAKER_01: of if someone is listening today and they currently have like almost 100%
1:00:48
SPEAKER_01: of their investment in money market,
1:00:50
SPEAKER_01: what's the first thing you would actually tell them to do?
1:00:52
SPEAKER_01: And this is, you're not talking about a little money,
1:00:54
SPEAKER_01: you're talking someone has millions of money into only money market funds and also
1:01:00
SPEAKER_01: If someone has never invested outright this money market fund,
1:01:03
SPEAKER_01: what's the first asset class you would actually lead them to?
1:01:07
SPEAKER_01: So not only what would return them to,
1:01:09
SPEAKER_01: but what asset class would you move them as the first option?
1:01:14
SPEAKER_00: I'll try to summarize, but give you a story of a man from one
1:01:18
SPEAKER_00: of the small towns near Nairobi that had actually saved 1 million Kenya shillings
1:01:23
SPEAKER_00: in the 80s for each of the four children.
1:01:26
SPEAKER_00: At that time, that was a lot of money because that one Inflation could buy,
1:01:29
SPEAKER_00: for the people who know, a Cujo 504, three of them in the 1980s.
1:01:34
SPEAKER_00: But by 1994, the same amount could not afford to buy even a single one.
1:01:39
SPEAKER_00: And what am I bringing forth?
1:01:41
SPEAKER_00: It's something called inflator.
1:01:44
SPEAKER_00: And inflation varies depending on the country and the currency.
1:01:47
SPEAKER_00: And we have to be cognizant of that.
1:01:50
SPEAKER_00: Right now, the latest inflation numbers showed around 6.8.
1:01:53
SPEAKER_00: We've had lows of 3.5.
1:01:55
SPEAKER_00: And there's something we call a real return of money.
1:01:58
SPEAKER_00: As of now, money market funds are not having very good real return in terms
1:02:04
SPEAKER_00: of return because We are looking at majority of them being at around 9%.
1:02:08
SPEAKER_00: If you deduct first what we call withholding tax of about 15%, then we remove the inflation.
1:02:15
SPEAKER_00: We'll end up with around 1% as the real return.
1:02:18
SPEAKER_00: So when some If someone is actually investing all their money in money market fund,
1:02:24
SPEAKER_00: are we getting real growth of your money or are we just safekeeping?
1:02:28
SPEAKER_00: Is it the same as almost putting the money under the mattress and just keeping it safe?
1:02:37
SPEAKER_00: Where we had highs of about 15 % and inflation was quite low at that moment.
1:02:42
SPEAKER_00: That time we had a real rate of return being around 6 to 7%.
1:02:46
SPEAKER_00: And it was a good return considering the risk,
1:02:49
SPEAKER_00: I wouldn't even You can blame someone at that moment
1:02:52
SPEAKER_00: because they would say it's quite a very good return for a very low risk.
1:02:56
SPEAKER_00: But as we have changed and interest rates have changed over time,
1:03:00
SPEAKER_00: it's time for them to diversify.
1:03:03
SPEAKER_00: And what's the best way?
1:03:04
SPEAKER_00: The first thing is because it seems these are people who are not used to investments
1:03:09
SPEAKER_00: and they don't understand various investment vehicles.
1:03:12
SPEAKER_00: I would first tell them to invest more into other now different FISs
1:03:16
SPEAKER_00: so that the money is professionally managed.
1:03:19
SPEAKER_00: So that means they can choose whether to go to an equity fund,
1:03:23
SPEAKER_00: a fixed income fund or respect to fund.
1:03:25
SPEAKER_00: Sometimes the more diversity fund, the better, but not to deploy all of it.
1:03:29
SPEAKER_00: So majority of it and looking
1:03:31
SPEAKER_00: at the expenses will start telling them Start diversifying slowly.
1:03:36
SPEAKER_00: So maybe even being as aggressive as keeping about 30 to 40% fast into steal
1:03:42
SPEAKER_00: the money markets and not diversifying the rest and then take a very small portion
1:03:46
SPEAKER_00: and start learning how to buy a bond,
1:03:49
SPEAKER_00: start learning how to buy an equity that is a stock
1:03:52
SPEAKER_00: in the Nairobi Securities Exchange and start understanding other instruments
1:03:56
SPEAKER_00: that they can invest in as they grow their journey to investing.
1:04:00
SPEAKER_01: Thank you, Ian.
1:04:01
SPEAKER_01: I feel like there's so many questions that you can actually go over when it comes
1:04:04
SPEAKER_01: to building portfolios actually, but because of time, you can't do much of it.
1:04:09
SPEAKER_01: So Rina, just give us a closing remarks as you tell us that one investment mistake
1:04:14
SPEAKER_01: that you'd like every or someone to avoid when they want to build their portfolio.
1:04:18
SPEAKER_01: What's that one mistake you've seen many people doing and how can they avoid it?
1:04:23
SPEAKER_02: I think the one mistake I find a lot of people making is not doing due diligence.
1:04:30
SPEAKER_02: Before investing and investing because many people in their circle are saying it's
1:04:36
SPEAKER_02: a good investment and going ahead without actually checking another one.
1:04:40
SPEAKER_02: And I'm also guilty of doing this.
1:04:42
SPEAKER_02: So I'll just share the second one is investing and not taking the time to follow.
1:04:48
SPEAKER_02: So for example, you buy a piece of land, you don't know where it is.
1:04:51
SPEAKER_02: You buy a house or a real estate investment you don't know is rent paid.
1:04:56
SPEAKER_02: How's the management of my Apartment, going in and seeing and inspecting sometimes,
1:05:01
SPEAKER_02: or buying a financial asset and not knowing what's the price of the shares I bought,
1:05:04
SPEAKER_02: which broker did I buy through.
1:05:06
SPEAKER_02: What's the price right now?
1:05:07
SPEAKER_02: And that process of reviewing your investment is something a lot of people don't do.
1:05:11
SPEAKER_02: So those two things are the mistakes I think people make the most,
1:05:15
SPEAKER_02: avoiding or not doing due diligence.
1:05:18
SPEAKER_02: And secondly, not following up to ensure that their assets are still there.
1:05:21
SPEAKER_02: Where are they? And keeping a record of what's going on.
1:05:24
SPEAKER_02: But in terms of just my parting shots,
1:05:26
SPEAKER_02: I think I would like to say is the fact that wealth is built Over time,
1:05:31
SPEAKER_02: by knowing what it is you want to be able to achieve,
1:05:34
SPEAKER_02: by being patient and consistent.
1:05:36
SPEAKER_02: And guys, not by finding the best, highest rate.
1:05:40
SPEAKER_02: It's not the best, highest rate.
1:05:43
SPEAKER_02: And it's not a one-hit wonder.
1:05:45
SPEAKER_02: It's purposeful.
1:05:47
SPEAKER_02: It is consistent.
1:05:48
SPEAKER_02: In fact, I was telling some kids today that growing wealth is probably
1:05:51
SPEAKER_02: the most boring thing you will ever do because you have to keep doing the same thing
1:05:54
SPEAKER_02: over and over, over time.
1:05:55
SPEAKER_02: It's not exciting.
1:05:56
SPEAKER_02: It's slowly built.
1:05:58
SPEAKER_02: But with patience and consistency, we will all be able to get there.
1:06:02
SPEAKER_02: Thank you so much for the opportunity to be here.
1:06:03
SPEAKER_02: And thank you everyone for joining.
1:06:05
SPEAKER_01: Thank you, Rina. So, Rina, there was a question for you.
1:06:08
SPEAKER_01: You just answered that, then you give us a closing remark.
1:06:11
SPEAKER_01: What's the applicant goal as an allocation?
1:06:13
SPEAKER_01: And then just tell us, what should more Canadians understand about building wealth
1:06:18
SPEAKER_01: as you give us that particular.
1:06:19
SPEAKER_00: I think we first answered the first question you've asked,
1:06:23
SPEAKER_00: what is the outlook on gold as an allocation?
1:06:26
SPEAKER_00: One of the things is we've had the strangest behavior of gold this year,
1:06:31
SPEAKER_00: especially from March till now,
1:06:33
SPEAKER_00: because gold has always This has been observed as a safe haven. That is number one.
1:06:38
SPEAKER_00: And being a safe haven, anytime there have been turmoil,
1:06:41
SPEAKER_00: what has happened is gold has been the place that people run actually to buy
1:06:45
SPEAKER_00: for safety. And this has happened in COVID times.
1:06:48
SPEAKER_00: It has happened where we had We choose with oil, but for this time,
1:06:53
SPEAKER_00: we actually had the opposite.
1:06:55
SPEAKER_00: We started the year and actually gold rolled a lot,
1:06:58
SPEAKER_00: but with more turmoil and oil rising,
1:07:01
SPEAKER_00: we've seen that people did not actually buy more into gold.
1:07:05
SPEAKER_00: Gold has strengthened and actually consequently gold fell.
1:07:09
SPEAKER_00: We have seen gold being range bound rather than being a very strong address.
1:07:14
SPEAKER_00: And also there's one thing that we actually make mistake in gold.
1:07:18
SPEAKER_00: Gold does not yield anything.
1:07:20
SPEAKER_00: Unless now the price shoots up.
1:07:22
SPEAKER_00: You cannot compare with buying a stock where you might wait for dividends to come
1:07:26
SPEAKER_00: in beneath a stock on a company.
1:07:29
SPEAKER_00: So a commodity you buy, unless now the price appreciates,
1:07:33
SPEAKER_00: or maybe you have short and the price drops.
1:07:36
SPEAKER_00: That is when you can make money or lose money depending on the position that you have taken.
1:07:40
SPEAKER_00: As of now, my position on gold still remains flat because it remains a bit rebound
1:07:47
SPEAKER_00: between the levels of 3,800 to the highest that we've seen is 5,700,
1:07:52
SPEAKER_00: but we've Mostly being between, let me call it between the 3,800 to 5,000.
1:07:59
SPEAKER_00: That's the rate that it has been.
1:08:00
SPEAKER_00: Right now looking at around 4,150.
1:08:03
SPEAKER_00: That is the range that it has been.
1:08:05
SPEAKER_00: I would say long term, we still expect gold.
1:08:09
SPEAKER_00: Now, on my parting shot,
1:08:15
SPEAKER_00: you said, what should Mokinans understand about building wealth?
1:08:18
SPEAKER_00: And I want just to give my parting shot.
1:08:20
SPEAKER_00: So wealth is built by matching money
1:08:23
SPEAKER_00: to So wealth
1:08:29
SPEAKER_00: is less about finding
1:08:31
SPEAKER_00: the perfect investment and more about avoiding big mistakes for a long time.
1:08:36
SPEAKER_00: We'd like to repeat that.
1:08:37
SPEAKER_00: Wealth is less about finding the perfect investment and more
1:08:40
SPEAKER_00: about avoiding big mistakes for a long time.
1:08:43
SPEAKER_00: Give every shilling a job.
1:08:44
SPEAKER_00: Tip enough cash so you are never forced to sell.
1:08:47
SPEAKER_00: Let long-term money grow through ups and downs and review it calmly.
1:08:53
SPEAKER_00: Not daily.
1:08:54
SPEAKER_00: The people who do the best are really the boldest and they are the most consistent.
1:09:00
SPEAKER_00: And you can refer to one of the richest guys who have been investing in stocks.
1:09:04
SPEAKER_00: And the major thing is buying a stock and after the holding for over a long time.
1:09:09
SPEAKER_00: Thank you.
1:09:10
SPEAKER_01: Thank you, Ian. It's been a very good discussion.
1:09:12
SPEAKER_01: I believe there's still so much that we need to talk about when it comes
1:09:16
SPEAKER_01: to building wealth and building portfolios and doing it professionally other
1:09:19
SPEAKER_01: than just accumulating assets or rather than just sitting into money markets.
1:09:23
SPEAKER_01: There's so much that you can still speak when it comes to this.
1:09:26
SPEAKER_01: You can teach us to find the investment bank.
1:09:28
SPEAKER_01: If you have Torina or Ian or anyone at FIDA,
1:09:31
SPEAKER_01: they can be able to help you in building your portfolio professionally.
1:09:35
SPEAKER_01: Or help you to build or move from just being a money market owner into advanced assets.
1:09:40
SPEAKER_01: You are going to close there.
1:09:42
SPEAKER_01: So from us, the Mwango team, and from our speakers, have a lovely evening.
1:09:46
SPEAKER_01: And thank you all for taking your time and joining our spaces tonight.