It is normally said by financial advisers that the best way to ensure you make the best of your working life is to make your money work for you. What is not normally clear is if you need a lot of zeros against a certain digit to put them to work, or you can start with what you have.
A zero by itself is an insignificant digit. A zero on the right side of another digit except itself makes a huge statement. A zero can make a difference between a millionaire and a billionaire. We can form a frame around our discussion about making the zeros sweat by asking a simple question. If you or your child are so talented, and you get some income through swimming, income that does not need to be used, what is the best way of keeping it? Do you save it? Do you invest it in some financial vehicle like stocks, shares? Do you do some Forex or Crypto trading? Do you buy a piece of land, do you start a business? What do you do?
In this article, we will explore at a 1.0 level, what you can do, but we will start at the ‘why’. WHY ARE YOU PUTTING THE ZEROs TO WORK?
People put money aside for various reasons including:
- to have a retirement fund
- to go on holiday
- to provide a secure future for the children and themselves
- accumulation of startup capital
- to buy a long-desired item such as a house or a car
- to simply have more money in the bank account
- to fund a certain lifestyle
Whatever your reason for putting your current zeros to work, there must be two fundamental states to be in for you to make a return on your investment. These are CLARITY and RISK APPETITE. The thing about working the zeros is that there is no guarantee of return. You can be guaranteed of what you are putting in, but you cannot be guaranteed of profiting from it.
In the recent Europe happenings of Britain leaving the European Union, there were many FOREX traders who lost money due to the changes in the British Pound and Euro in the trading markets. There are those who on the other hand gained tremendously. Zeros do not work in a vacuum. They work in a volatile environment and that means that you cannot just take your money and put it there without understanding what will happen to it while it is there and when you come back for it. So let us explore these instruments that put our zeros to work for us.
Savings and fixed deposits
These are low risk and also low in return. On the outset, let us be clear that no one ever got rich by saving. If every day for the next 30 days you saved a slice of bread, you will only end up with the one loaf of bread that you failed to eat. You will not have 30 loaves.
When deciding to put your money in a savings or fixed deposit account you need to be clear about your expectations and other options that you are not taking. A simple example, if with 100,000 a bank offers you 2% annually for interest, what would you be expecting at the end of 12 months if the money remains untouched? So what if someone told you that there is possibility of earning more with another instrument?
Stocks and shares
A share is a single unit of ownership in a company. When someone says that they have shares in company XAD, it means that they have bought a piece of the company at a particular price. They can make money from the increase in value of that company as its other shares are bought and sold on what is known as the stocks market or through a portion of the profits which are allocated according to the shares owned (also known as dividends).
Trading in stocks and shares is a good way to make your money work for you because you are buying into companies of repute which are listed publicly and in what is known as a stock exchange. This instrument requires you to trust someone else to trade for you, but you also have to be an active participant to ensure you get maximum yields. It only makes sense when you have a substantial amount either invested all at once in various companies or over time for you to have what is known as a portfolio.
Always remember that trading stocks and shares is a business. Success eludes under capitalized businesses.
[bctt tweet=”Success eludes under capitalized businesses” username=”@wangarimaina”]
Government securities
These can be bonds, treasury bills and treasury notes. When you buy a government bond, you are assured of an interest rate that is fixed for an agreed period of time and at the end of that time, you get back your money plus the interest accrued. Needless to say, government interest is better than your savings account interest. Treasury bills/ notes/ bonds take a while to mature and its basically the government asking you to give it a lot of money over a long period of time and it will give it back to you with an interest.
The best way to invest in government securities is through mutual funds which offer more variety for investment. A varied mutual fund has higher returns.
Forex trading
Someone once retorted that Forex trading is like gambling. You put in a shilling and it gives you three back then you put in the three and they reduce back to one within the same hour. True or false, forex trading is a risky way to invest and one must learn the environment even if you are trusting someone else to do the trading for you. Forex trading is basically trading in currencies and in a market that is not regulated, especially in this era of internet access.
The most interesting thing about this instrument is that you can do it from the comfort of your bedroom with an internet connection and a computer. Many have made great gains, but many have also made great losses. This instrument requires you to know stuff on the international scene. Something as small as an announcement by the United States Secretary of State about a certain country can easily tilt the market in your favor or loss. Clarity and risk appetite play out greatly for this instrument.
Purchase of physical and cryptocurrency assets
One of the most interesting ways to work your zeros is the purchase of physical assets, particularly real estate and the volatile crypto currency assets. One has to be careful how they do this one because it can be a quick gain or a painfully slow one. Recently in a conversation with some gentlemen, there was a comment that one should buy a piece of real estate somewhere because you can never go wrong with that. Even if you do not stand to gain from it, your children will.
The jury is till out on the crypto assets but extensive research and due diligence is required for any investment to be made.
Real estate, in a community where there is an increased demand for housing, is a sure way of investing. There is buying for speculation and that is a risky affair but whichever the case, clarity for what you want to do with that must be sought.
It is important to note that there is no wisdom in purchasing depreciating assets like top of the range cars. Zeros will only work for you if you purchase assets that appreciate in value and they cost you minimum to maintain them. Land is not the only appreciating asset. There are apartments and flats which are also prime sources of multiplied zeros.
Mutual funds and other instruments in that bracket
A mutual fund is an investment vehicle made up of funds collected from many investors for the purpose of investing in stocks, bonds and similar assets. A mutual fund is professionally operated by money managers, who invest the moneys available (fund’s capital) and attempt to produce gains and income for the investors. The various investments are known as a portfolio.
Mutual funds give small investors access to professionally managed, diversified portfolios of equities, bonds and other securities, which would be quite difficult (if not impossible) to create with a small amount of money. Each shareholder participates proportionally in the gain or loss of the fund.
Whichever your choice of vehicle, always remember that your zeros must not just add onto themselves, they must multiply.
For more insights into finance issues that will influence your profession, career, or work, I recommend the book “Rich Dad’s Guide to Investing: What the rich invest in, that the poor and middle class so not” By Robert T. Kiyosaki
* This article does not in anyway act as financial advice and the author of the article is not a professional finance advisor thus a strong recommendation that you take the advice of a professional financial adviser on the vehicles that can carry your investments.
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