WHY FINANCIAL LITERACY IS IMPORTANT FOR THE KENYAN EMPLOYEE

What is financial Literacy? It is the ability to understand and effectively use various financial skills. It can be achieved through reading books, listening to podcasts, engaging with financial content or getting advice from a financial advisor.

?Financial literacy for a Kenyan employee means having a key understanding of financial management and how to have a smart relationship with money. It also plays a key role in understand long-term investments to engage in and why.

?An investment is a commitment of resources to achieve later benefits. If an investment involves money, it then becomes a commitment of money to receive more money later. Investment is as a result of being financially literate. You can engage in better and smarter investments when you understand the art of money. Here are some of the well known, long-term financial investments that you as an employee can consider.

REAL ESTATE

Real estate is a super lucrative investment, that has managed to surpass the test of time. For centuries, individuals who invested in real estate seemed to be on the frontline of financial ease. One way to invest in real estate is through individual properties, since they don’t need large amounts of capital.

Another way is investing through real estate crowd funding platforms. Unlike other traditional long-term investments that may decrease in value over time, real estate has proven to gradually increase in value.

Locally, the Kenya National Bureau Statistics recorded a 1.2% increase from the 4.1% in 2018 to 5.3% in 2019. The rapid growth of this sector has been supported by the massive population growth as reported by the Census report of 2019

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Another benefit is that the market performance of real estate doesn’t fluctuate as often, or even rarely does as compared to the financial sectors. This means that it offers a solid ground of stability for its beneficiaries.

One of the primary objectives of investors is to protect their wealth from inflation. Inflation erodes the wealth

MONEY MARKET FUNDS

They are also known as Money Market Mutual funds. It is a investment fund covered by a Money Market Fund Company. This is a mutual fund that invests in highly liquid, near-term instruments. These instruments include cash, cash equivalent securities, high-credit securities and debt-based securities with a short-term maturity. Money market funds are interested in offering investors in high liquidity with low-level risks.

Money market funds issues redeemable units or shares to investors and they are mandated to follow the guidelines drafted by financial regulators. Government money fund is a type of money market fund.

-Government money fund; These types of funds invest in 99.5% of it’s total assets in cash, government securities and repurchase agreements that are fully collateralized by cash or government securities.

Money Market fund offer a scope of good returns. They offer higher returns of 8.9% that are higher than the inflation rates of 6.5%. They also offer investors with liquidity that offer security because they mature in short periods of time and can be easily liquidated for cash. Money market funds also offer low investment amount, that can go as low as KES1000, which is averagely affordable for the Kenyan employee.

ALTERNATIVE ASSETS

Alternative assets have a low correlation than the typical traditional investments. They usually tend to improve an investor’s portfolio through diversification, which in turn reduces an overall risk exposure across investments. These include private equity, fractional ownership of property, precious metals like gold and cryptocurrencies. Alternative assets take in Kenya include private equity, REITS, derivatives, venture capital and immovable property.

Our thesis is that the traditional 60/40 equity allocation is no longer a viable strategy. Increased correlations across sectors lead to boom/bust outcomes. If you want to invest 10% of your portfolio in alternatives, you may want to split the allocation among 5 or more assets. This in turn, offers protection from the market volatility.

Alternative assets can be divided into two;

-return enhancers- This is an investment added to a portfolio with the expectation of a higher than average return.

-return diversifier- This is an asset added to a portfolio, because of its low correlation to other assets, with the aim of reducing risks to the overall portfolio.

that invests in highly liquid, near-term instruments. These instruments include cash, cash equivalent securities, high-credit securities and debt-based securities with a short-term maturity. Money market funds are interested in offering investors in high liquidity with low-level risks.

Money market funds issues redeemable units or shares to investors and they are mandated to follow the guidelines drafted by financial regulators. Government money fund is a type of money market fund.

?????? ?-Government money fund; These types of funds invest in 99.5% of it’s total assets in cash, government securities and repurchase agreements that are fully collateralized by cash or government securities.

Money Market fund offer a scope of good returns. They offer higher returns of 8.9% that are higher than the inflation rates of 6.5%. They also offer investors with liquidity that offer security because they mature in short periods of time and can be easily liquidated for cash. Money market funds also offer low investment amount, that can go as low as KES1000, which is averagely affordable for the Kenyan employee.

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ALTERNATIVE ASSETS

?Alternative assets have a low correlation as the typical traditional investments. They usually tend to improve an investor’s portfolio through diversification, which in turn reduces an overall risk exposure across investments. These include private equity, fractional ownership of property, precious metals like gold and cryptocurrencies. Alternative assets take in Kenya include private equity, REITS, derivatives, venture capital and immovable property.

Our thesis is that the traditional 60/40 equity allocation is no longer a viable strategy. Increased correlations across sectors lead to boom/bust outcomes. If you want to invest 10% of your portfolio in alternatives, you may want to split the allocation among 5 or more assets.? This in turn, offers protection from the market volatility.

Alternative assets can be divided into two;

?? -return enhancers- This is an investment added to a portfolio with the expectation of a higher than average return.

?? -return diversifier- This is an asset added to a portfolio, because of its low correlation to other assets, with the aim of reducing risks to the overall portfolio.