We are often asked why one should invest in shares. For this first post, we briefly state our most compelling reasons for investing.
- Ownership of companies. A truism lost on many investors today is that a share bestows fractional ownership in a company. Why struggle with a “side-hustle” when instead, you can be a part-owner in successful, well-managed companies?
- Additional income stream. Shares and bonds provide an additional income stream through dividends, capital gains, and interest payments. The beauty of these instruments is that the income is passive--you don’t have to show up for work every day.
- The power of compound interest. Albert Einstein, who was no dummy, said, “Compound interest is the eighth wonder of the world. He who understands it, earns it…he who doesn’t…pays it.” If you’ve ever paid back a loan with compound interest, you know what Einstein was talking about. However, by investing, you get compound interest to work for you, instead of against you.
- Tax-free income. Currently in Kenya, profits from the sale of shares (capital gains) are tax-free. Contrast this to how much of your salary you pay out as PAYE, NSSF, NHIF, and other deductions, if employed. The 4-5% expenses incurred in trading shares can’t be compared to the 20-30% levied on employment income.
- Culture of saving. Investing instills a culture of saving and delayed gratification. Most people who achieve success in life, financial or otherwise, understand that discipline and delayed gratification are essential prerequisites. So, do you really need a new phone, those new shoes, a new car?
We’ve summarized some of the reasons for investing in shares. And now the disclaimer: there is an element of risk associated with investing. It is important to understand the level of risk you are willing to accept, as there are different investments suitable to different risk levels. Mwamba Capital works with each of our clients individually to understand your risk profile and investment goals. We’d like to hear from you!