In a previous time it was just enough to survive another
day. This uncertainty meant there was little incentive to think long term as
one never knew from day to day whether they would be around the next day.
Living hand-to-mouth made sense.
The relative security of the last two decades means we have
had to shift the way with think about money, wealth and financial legacy.
Stability tends to do that. It orders society. Allows the
creation of wealth by a bigger pool not just by the eternal optimists or
hardcore hustlers.
In addition the first generation that got employment after
employment have gone into retirement, many with less than good results. Another
generation, the one that has lived all its adult life in the NRM era hears the
retirement knocking incessantly.
These pressures have triggered the construction boom of the
last decade and provides fuel for any number businesses being set up by the day
around the country.
The challenge is one of building an asset base that can, on
retirement, throw off enough income to sustain us through our evening years.
If you think about it if you are making one million a year,
ideally you need an asset or assets throwing off a net income equivalent to that every year to sustain your
current lifestyle.
Using the benchmark 91-day treasury bill yield of about a
ten percent you would need an income generating asset of at least sh10 million
to keep you happy or at least as happy as you are now. Of course if your annual
income is greater than one million the challenge is that much greater.
The say that time is money comes into sharp focus. The
sooner you set upon the journey of building this asset the better the chance
that you will retire with it in place.
It’s unlikely that one can save enough money in their
working life to guarantee a comfortable retirement, so inevitably the question
of investment comes into play.
Investment is about committing resources to an endeavor with
a hope of future return. The key word is hope, because even with the best
investments success is not guaranteed. So investment success needs to account
for failures.
There has been a time old practice in office for a group to
form around the idea that they each contribute a monthly sum to a common pool
and every month one person takes the collections to meet every day needs or
push personal projects.
A friend is involved in one and after months of operation is
wondering why there seems to be no positive progress in his life or the group’s
generally.
There are two ways to spend money either you consume it or
you invest it. The reason my friend is seeing no progress because its likely
that when individual members get their windfall they tend to eat the money
rather than invest it.
However this “merry go round” arrangement comes from an
important realization that collaboration is required, the execution is where it
falls short.
The members will be best served if they convert themselves
into an investment club, which while continuing to save monthly will be much
better able to invest meaningful sums at a go.
The critical thing with these groups is the reach of their
vision. If the group has a long term
vision it will be better able to weather the inevitable speed bumps that come
along, avoid the temptation to descend into an orgy of consumption when
meaningful sums have been accumulated and hold the faith of delayed
gratification.
The size of the vision will determine the eventual size of
the enterprise.
A group I know that started operations eight years ago have
been able to grow their investment fifty one fold or showing an average annual
return of 63% after tax. They did this while doing nothing spectacular other
than lending to themselves and investing surpluses in treasury bills and bonds.
The group which now has savings of about sh2.5b today has
properly harnessed the power of compound interest, what Albert Einstein called “the
eighth wonder of the world”.
It’s about creating value. During our schooling years we
accumulated value in the way of information, which information we have been
paid to employ in creating value for the companies we work for.
Learning how to invest and investing means capturing some of
this value for ourselves and may be the most useful use to oneself of all the
knowledge that has co me with our schooling and working experience.
