Investors have different motivations. Some want to preserve their capital while others are more interested in growing it. Inevitably, your motive will determine your investment strategy. If your main objective is for your wealth to grow, here’s what you should prioritise when evaluating an investment opportunity:
- Does it Offer High Returns?
For any investor wanting to expand their capital, the return is a key consideration. Fixed income products such as government securities are very low risk, but they may do little for someone who is looking to create a certain amount of wealth quickly, aside from diversifying his/her portfolio. Look for products whose return matches the capital growth you require to ensure that you meet your investment objectives.
- How is Risk Mitigated?
The old saying – high risk, high reward – has duped people into thinking that the only way they can earn worthwhile returns is by accepting high risk ventures. However, this is far from the truth. A fund with a sound risk management strategy can give you a great yield while hedging from the risks inherent to investing. Inquire what measures a fund manager has in place to mitigate risk when considering an investment.
- Who Manages the Fund?
It matters who you trust with your money. What are their qualifications? Do they have an in-depth knowledge of the industry? What is their track record? Are they innovative? Most importantly, can you trust them to constantly look for ways to deliver you the best possible return without endangering your capital?
- Is the Investment Regulated?
Regulation can be a contentious topic. On the one hand, some feel that regulators, especially in the financial space, are slow to validate new products that can earn a good return for investors. However, on the other hand, regulation offers a safety net for consumers because they have an impartial, knowledgeable party looking out for their interests. Regulation should be particularly important for individuals looking for capital growth to avoid being enticed by unscrupulous parties who promise high returns but turn out to be cons.
- Is the Investment Liquid?
More often than not, an individual looking for capital growth wants to be able to meet certain financial obligations. It could be anything: living expenses, school fees, money to build a home, etc. This then implies a need for liquidity, that is, for it to take a short amount of time to convert the investment into cash. When evaluating an investment opportunity that gives you capital growth, you should also consider whether it is liquid.
While these considerations are important for all investors, they should be prioritised if your main outcome is to achieve capital growth. Email clientservices@sib.co.ke for assistance defining your investment profile.