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Diaspora Financial Planning III: The Benefits of Investing with Others

By Cytonn Diaspora     Tags :  

Investing with others has benefits:

Remember, 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.

As a result, a combination of asset classes is often better than investing in either one alone. Combining asset classes into one investment type results in investments that have lower risk, higher returns or both.

However, most investors don’t have the time, money or skill to create that perfect combination of investment solutions.

For them, unit trusts, mutual funds, cooperatives and structured solutions provide a cheap and easy way to access that perfect combination

    • Unit Trusts offer collections of shares or bonds selected by an investment manager. The main benefit of unit trusts is that they offer low cost diversification. Investors need not worry about researching and picking individual shares and bonds. Investment managers select the combination of shares and bonds that they believe will maximize returns.

      Unit Trusts in Kenya take the following forms:

      • Money Market funds invest in short term bank deposits, corporate bonds and treasury bills with the goal of providing high liquidity and the best returns possible. The minimum investment is KES 1,000 (US$ 10)
      • Balanced Funds invest in a mix of shares and bonds with the goal of providing long term capital appreciation while minimizing risk. The minimum investment is KES 50,000 (US$ 500)
      • Equity funds invest in only shares with the goal of providing long term capital appreciation while minimizing risk. The minimum investment is KES 50,000 (US$ 500)
      • Bond funds invest in corporate and government bonds with the goal of providing capital appreciation and steady income. The minimum investment is KES 50,000 (US$ 500)
    • Cooperatives are pooled investment vehicles owned by their members. In Kenya, Cooperatives exist as SACCOs (Savings and Credit Cooperatives) and Investment Cooperatives.
      • SACCOs exist to provide cheap loans to their members while providing a return on the funds invested as either deposits or shares (capital contributions)
      • Investment Cooperatives collect members’ funds to invest in land, property and other businesses in order to generate the best returns on contributed funds. Members contribute capital when they buy shares and receive dividends and capital contributions
  • 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)

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