The Sunday Mail
Dollars and Sense
Kudzai M Mubayiwa
[Part 1]
Investment is an action done to grow money. This can be money originating from working or saving or a donation, any source really. The intention is making more money, and at the very least preserving value and beating inflation. There are several avenues of achieving this which are often called investment products. Anyone can invest — you need not wait until you are a millionaire. If anything, some of the best returns are made in places where one dollar gives you double or more of what was put in, on small amounts. It is important to take note of the fact that different people will behave differently with respect to investing. Certainly the returns individuals (or institutions) will seek are different. What one may call a satisfactory or good return may not be sufficient for another. There will also be differences in risk appetites — some people are very conservative and risk averse, others are in the middle and yet others are on the other extreme — quite adventurous. This affects the choice of products and selection of opportunities. Finally, all of us have different time horizons for investing, and this comes back to biology. It is generally implied that the younger one is, the more time they have to invest.
Building wealth needs one to develop good habits — like regularly putting money away every month. Once saving and investing become an early habit, one can be in a much stronger financial position in the future. The goal will be to build a portfolio over time, with asset allocation for the short, medium and long term. One needs to invest in assets that they can easily liquidate to treat situations or take up opportunities as they arise in the short and medium term – under five years. There is also need for solid investments that provide security and stability into the very long term, and can become one’s retirement plan or legacy investment. Before we look into some examples of investments in Zimbabwe, it is vital to highlight that every one of them has a potential upside and downside. The technical people say every investment has potential return and potential risk.
Past return or performance is not a guarantee of future return. Risk can only be managed, but never eradicated, therefore it is the choice of the player to see what they can live with. There are generally four major asset classes in Zimbabwe which are the cash/money market, the equities market, the property market and alternative investments. Under each of them are different types of products which we summarise.
The cash or money market is fairly simple to understand, most people’s first interaction with financial services is through a bank, and most banks offer a savings account product. The idea is that when you place your money with the bank for an agreed time period, they will give you a return in the form of interest, after they have used your money to make money by lending it. Unfortunately, the returns on these savings products have been quite low in the prevailing environment, barely covering bank charges never mind beating inflation. It makes no sense to invest cash on the market for a return that is below 10% per year, when inflation is currently at 75% as per most recent official figures. This market can be taken advantage of when rates are high and is an investment you can easily liquidate; the return is fixed hence the alternative term: fixed income investments. Banks and asset managers offer this facility and their minimum amounts vary for this product, but it is accessible to everyone at every level, from small savings accounts through to large placements with treasuries.
The equities or stock market or shares is that market where one can buy and sell shares (one’s ownership in a listed company). The aim is to buy low and sell high, thus benefiting from what is called capital appreciation. In addition, shareholders can benefit from dividends – which is cash from profits or extra shares paid out in proportion to what one already holds. Empirical evidence shows that in the long run this market will outperform other markets. Shares can be used as short, medium or long term investments — some like to buy for speculative purposes, others prefer to buy quality counters and hold them over the medium and long term. Typically, one would need a stockbroker to buy or sell these, but in addition to the traditional way, there is not the option of using the online platform C-Trade, that allows once to buy or sell shares using very little money, and paying straight from a bank or mobile money account. The choice of shares to buy is informed by news — internal news of a company’s performance; and the impact of major external news – macroeconomic or industry announcements and occurrences. As such share prices can go up or down, driven by this important information and perception, as well as the economic rules of supply and demand.
There tends to be an inverse relationship between the stock and money market, when one is up the other is down.
The property market is also straightforward — one invests in a building — and leases it out for residential or commercial purposes. Their benefit is twofold — the capital appreciation —increase in the value of property over time, and of course the yield which is the rentals that come in monthly less costs. Without a doubt this has proven to be the safest and possibly soundest investment for the average person in the past two decades in Zimbabwe, property may not give exciting returns but it has maintained value in the face of hard and harsh economic times. Indeed, most who are deemed wealthy are those who have invested in this — the real deal called real estate. It is my belief that there is value in every Zimbabwean pursuing land and buildings as an investment, hardly will you incur a loss, in fact, with ownership of just one property, one can immediately meet the requirements of the four pillars of financial wellness we highlighted in the first article in this column. That one property you live on, with a few lodgers giving you rental income, will ensure that you have a stream of income to cover a basic lifestyle, emergencies and will be in itself a retirement plan and a legacy for loved ones. The push must be to secure land as soon as possible in any place, rural, urban or peri-urban; possible! Land is, after all, a finite resource — there can be no downside in our environment of getting it. Some even go on to utilise the land for other productive activity such as horticulture.
Participation in the money or stock or property market can also be through what are called unit trusts, that were popularised by a certain local bank a decade and a half ago. Certain regions call them mutual funds, a perhaps more befitting term that describes the fact that a fund manager receives money from small or large investors who would like to put cash into any one of these investments, but not directly. The fund manager would then pool these investor funds and buy into a specific underlying asset — a fixed income investment, or certain shares, or property, or a mix of some/all of these. The investors then share in the growth or losses of such assets and can easily buy in or exit by purchasing or selling units in the mutual fund. These are a fantastic way for anyone to start investing very little and learn over time, but consistency is the name of the game. They work for the short, medium or long term.
The final asset class is what we can collectively refer to as alternative investments. These include private equity / venture capital, biological assets such as acquiring livestock, microfinance through local informal savings clubs, foreign currency investments and commodities.
We will speak to these in detail in the final part of this column on investing next, then propose a tactical allocation for our present environment, and individual circumstance, as well as some common dos and don’ts of investing. After that, all of us should be able to start somewhere in investing!
Kudzai M Mubaiwa is a financial wellness trainer and author of the personal finance book “Take Charge of Your Personal Finance”. She also podcasts on mari.co.zw. Contact her on [email protected] or twitter @kedukudzi
