Knowledge Base

25

Feb

2017

Learn About the 5 Investment Types in Kenya

By Cytonn Diaspora     Tags :  


Why should you care about asset classes?

Investments are grouped into classes due to their different levels of risk (capital loss), returns (capital appreciation) and liquidity (ease of exit).

As a rule, higher risk assets yield higher returns.

Asset classes are further grouped into traditional and alternative asset classes

Traditional asset classes represent the most common asset classes such as stocks (shares/ equities) and bonds (fixed income).

Alternative asset classes represent less liquid investments and include real estate, private equity and structured products.

The mix of asset classes in your investment portfolio is determined by the historical risk-reward profile of traditional and alternative asset classes and your objectives (capital appreciation versus capital preservation and liquidity)

  • Shares represent proportional ownership in a company and are riskier than bonds but have historically offered comparatively higher returns. Shares are further classified by size (large-caps, mid-caps & small-caps) and value versus growth categories. Value firms are mature firms that offer stable returns and stable principal while growth firms offer the potential for larger capital gains
  • Bonds are securities representing loans given to corporations or governments and are less risky than stocks. Bonds issued by the Kenya Government are considered risk free while bonds issued by corporations have varying risk levels. Generally, investors are encouraged to invest in those bonds that are rated above investment grade. Though higher risk bonds yield higher returns, there is a higher risk of loss.
  • Real estate refers to investments in land, property and buildings for rental or speculative purposes. The return from real estate is comprised of rental yield (annual rent as a percentage of purchase price) and capital appreciation (the yearly increase in price as a percentage of purchase price).
  • Private Equity (PE) refers to investments in shares issued by privately held companies. PE investors earn returns when they exit their investments by selling to other investors or the public in an initial public offering
  • Structured Products are pre-built investment solutions created from a combination of traditional and alternative investments. They are intended to offer better capital preservation and/or higher returns. One such example is our Cash Management Solutions (CMS)

In summary: A combination of asset classes is often better than investing in either one.

Asset class

Capital Loss (Risk)

Capital appreciation (Reward)

Liquidity (ease of exit)

TRADITIONAL

Shares

High

High

High

Bonds

Low

Low

High

ALTERNATIVES

Private Equity

Low

High

Low

Real Estate

Low

High

Low

Structured products (CMS)

Low

Low

High

Takeaways:

  • Alternatives/ Structured solutions have outperformed traditional investments like stocks and bonds in the past 5 years
  • By combining stocks and bonds, structured solutions like CMS offer better returns at comparatively lower risk than stocks and preserve your money because they mix shares and bonds with alternatives like real estate

Be the 37%

  • According to Morningstar, in 2015, 63% of all recipients spent their tax refunds; only 37% of workers saved theirs
  • The average size of the 2015 tax refund was $2,800
  • Don’t wait to invest your refund. We have investments solutions earning 15% p.a for as low as $100 monthly