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    13Feb, 2024
    The FIRE (Financial Independence and Early Retirement) Movement
    FIRE Rubiani

    Financial Independence, Retire Early (FIRE) is a movement that aims to help individuals achieve financial independence and retire early by saving and investing a significant portion of their income. The FIRE movement encourages individuals to prioritize saving and investing over consumerism and lifestyle inflation and to use the power of compound interest and market returns to grow their wealth.

    The first step towards FIRE is to calculate your current expenses and your desired retirement income. From there, you can determine how much you need to save and invest each month to reach financial independence and retire early. A common rule of thumb is the "4% rule," which states that you can safely withdraw 4% of your invested assets each year in retirement without running out of money.

    Once you have a savings and investment plan in place, the next step is to implement strategies to reduce expenses and increase income. Cutting back on unnecessary expenses, such as eating out or buying expensive clothing, can free up money to be saved and invested. Additionally, increasing income through a side hustle or negotiating for a raise can also help speed up the journey to financial independence.

    Investing is a key component of the FIRE movement, and individuals often turn to low-cost index funds or real estate investments to grow their wealth. Diversifying investments across different asset classes and regions can also help reduce risk.

    It's important to note that the FIRE movement is not just about retiring early, it is about having the freedom to make choices about how to live your life. whether that means retiring early or not, The goal of the FIRE movement is to have enough savings and investments to cover your living expenses, so you can focus on the things that matter most to you, such as travelling, pursuing hobbies, or starting a business.

    Overall, the FIRE movement is a powerful tool that can help individuals achieve financial independence and retire early, but it requires discipline, focus, and a willingness to make sacrifices today to achieve greater freedom in the future.

    8Feb, 2024
    Are Insurance, SACCOs, Multilevel Marketing or Businesses Good Investment Opportunities?
    Coin on wooden table in front of green bokeh background. coins a concept of investment and saving moneys.

    In one of our previous blogs, we discussed some contemporary investment opportunities. The article elicited quite some reaction. We hope that it gave you some further insights into the products.

    In today’s blog, we look at more opportunities and discuss their viability for investing.

    Insurance

    Insurance companies have over time sold education policies and life insurance products as investments.

    These products are also referred to as endowment plans.

    The insurance companies receive payments referred to as premiums over a long time in exchange for a lump sum pay out at an agreed-upon time or compensation to beneficiaries in case the product buyer dies before this agreed-upon time.

    So, are these insurance products investments? Well, the reality is that insurance is more for protection rather than investment. In other words, the value of any insurance product is that you get compensated in case of a loss. For these life insurance products, for example, the real utility is the “peace of mind” you get -- That in case you die before the agreed-upon period, your beneficiaries will receive a cash pay out.

    However, in terms of investing, these products will give you a very low return on your investment. They are therefore not advisable for someone looking purely to invest.

    SACCOs

    SACCOs have over the years been a major source of funds for personal improvement and development. Kenya owes a lot of its development to SACCOs. From agricultural SACCOs to employee SACCOS, these institutions have provided pooled funds that have been used for both personal and national development. However, the question we are asking today is this: Are SACCOs a good investment opportunity?

    SACCOs are a major source of funding due to the ease of debt. Members borrow up to 3 times their savings without the need for security apart from a guarantee from other SACCO members. Debt processing is also easy and fast and the interest rate is relatively low. 

    However, the reality is that SACCOs are ideally not for investing but rather for accumulating funds towards taking a loan. For this reason, SACCOs will avoid members withdrawing their saved funds (shares) and rather encourage members to borrow money against these funds. Furthermore, very few people who receive dividends from SACCOs re-invest these dividends; therefore, the SACCO account savings do not compound.

    Running a Business

    Many investors believe that starting and running a business is a way of investing. They will invest their money in a shop or a matatu. Are businesses good for investing?

    Businesses are an ideal source of income as opposed to being an investment. Businesses in most instances require more of your time and effort as opposed to your capital. You will need to actively manage your business for you to make money. 

    It is for this reason that we advise business owners to have alternative investments apart from their business to separate their income from business and their investments. This way, their investments are shielded from business risks. 

    Multi-Level Marketing (Network Marketing)

    Multi-Level marketing (MLM) also referred to as Network Marketing or Referral marketing is another contemporary opportunity. The MLM business model allows members to join a business at a low initial cost. The business will be selling products such as health products, ornaments or services such as travel. Once you join the network, you get to profit every time you refer someone to join the network or buy products from the network company.

    Multi-level marketing has enabled many individuals to make substantive profits by simply referring others to use products or services. It is therefore a worthwhile source of income as opposed to being an investment opportunity. You can therefore consider MLM as a side hustle or alternative source of income and then channel funds made from your MLM to investment products that will grow your funds.

    Other “Investment Opportunities”

    There are other products or opportunities that always come up in our market promising to give good returns to investors. Some of these investment opportunities are indeed credible and you could profit. However, some fraudulent or bad investment opportunities would easily lead you to lose your funds. In our subsequent article, we will review how you can tell whether an investment opportunity is worth considering.

    6Feb, 2024
    Bit Coins, Day Trading and Forex Trading as an Investment Opportunity
    cryptocurrency bitcoin golden coin isolated in white background

    In our previous blog, we discussed the traditional investment products that have been used over the years to grow invested funds. These products have been tested over time and they are reliable for your investments. However, there are new investment products that continue to become available in the market. In this blog, we will discuss some of these contemporary products. 

    Bitcoins and Cryptocurrencies

    Cryptocurrency is digital cash or digital assets that are used to settle transactions similar to physical money. The digital cash is encrypted to regulate the generation of new units and to verify the transfer of the funds. Though there are many cryptocurrencies, the most common at the moment is Bitcoin. 

    The concept of investing in Bitcoin is similar to that of investing in any other asset. You invest in the currency and hope its demand and consequently its value will go up thus making a profit.

    The issue with Bitcoins is that like many other new products, there is quite some amount of misinformation and people taking advantage of a lack of knowledge to defraud potential investors. Furthermore, the usage of cryptocurrencies for transacting is still quite low and therefore, much of the demand for the currency is speculative. This has resulted in these currencies fluctuating and being unpredictable, especially for future growth. 

    Day Stock Trading

    Day stock trading is an aggressive way of trading the stock market whereby you keep buying and selling shares within very short periods in a bid to grow funds more rapidly. Some people offer a service to churn or aggressively trade your cash in the stock market with a promise of high returns. 

    In our experience, day trading in the Kenyan stock market is high risk as many factors make our market difficult for day trading. Firstly, the taxes and charges per transaction are quite high and you therefore need high margins to cover these costs and still make a profit. Unfortunately, most counters do not fluctuate much within the short run making it hard to make any meaningful profits. Secondly, most of those who offer to trade your money in the stock market will make a commission every time you trade. So they intend to trade as frequently as possible to grow their commission as opposed to making you money. For this reason, we find that there is a conflict of interest. 

    We have seen many investors lose large sums of money to these day traders who promise high returns but will often fall short of their promises. 

    Forex Trading

    Forex trading also known as currency trading is yet another contemporary investment opportunity that has gained traction with the widespread use of high-speed internet. The forex market is a decentralized market where the world’s currencies are traded. Online trading platforms operated by currency brokers allow individuals to open and trade in multiple currencies from around the world.

    Trading in forex entails exchanging one currency for another in the expectation that the price of the currencies will change in your favour and thus make you a profit. For example, if you believe that the US dollar will lose value against the British Pound, you can sell the US dollar against the Pound. If your hunch is true and the dollar continues to lose against the pound, then you will make a profit.

    There are various advantages of trading in Forex.

    • Online – Online trading has enabled almost anyone to access the over USD 5 trillion a day forex market. This has made the Forex market more liquid and less prone to manipulation. You can also start your practice on free demo accounts and this enables you to try out the market before transacting with your real money.
    • Easy to Trade – The Forex market is well advanced and is easy for any layperson to join, learn and start trading. There are tools and training opportunities that make it easy to learn and get started.
    • Leveraging – Online Forex is traded using leverage. Leverage means that you get to borrow against the cash that you are trading with so that you can increase your margins. The effect of leverage is that small movements in currency prices result in large changes in your funds. You can therefore make larger profits or lose funds much faster than when trading without leverage.


    Our take on Forex

    • Our caution when trading with Forex is that there are many non-regulated Forex online brokers. This does not guarantee the safety of your funds as you cannot verify the financial health of the broker. In Kenya, there is one online Forex broker who is licensed by the Capital Markets Authority – BrokerEGM Securities Limited. See CMA press release here. 

    There are also several online forex brokers that are credible. Therefore, you must do your thorough due diligence before starting forex trading.

    • Secondly, the use of leverage means that you easily make or lose funds. Many investors have lost a lot of their funds because of leverage. However, on the flip side, you can make substantive profits if you get to understand trends and use the right tools to help with your decisions.
    • There are also Forex traders who offer to trade on behalf of others. Some will even guarantee you a given return on the funds that you place under their trading. You must be extra cautious when allowing someone to trade forex on your behalf. Firstly, many of these traders are not regulated meaning that you do not have a recourse if they do not keep their end of the bargain. Furthermore, many of these traders have lost much of their client’s wealth as the Forex market cannot provide a guarantee.
    • Forex requires your consistent monitoring and taking of positions daily and at times hourly to profit. This means that it cannot be a passive way of investing your funds.

    We hope that the article has given you some insights on these products. We also appreciate hearing from you on the same. Please do get back to us by mail at invest@rubianiwealth.com

    1Feb, 2024
    The Kenya Debt Situation and its Impact on Treasury Bills and Bonds – A Comparison with Ghana
    4541387
    Summary
    -Kenya is due to pay USD 2 Billion in June 2024 as Eurobond Matures.
    -If Kenya makes the payment, the economy will experience relief as the next Eurobond maturity is in 2027.
    -Kenya's dollar reserves are low and settlement is dependent on a bailout from the World Bank, IMF and other concessional loans.
    -If Kenya defaults, there will be far-reaching effects that could result in Treasury Bonds being restructured as was the case in Ghana.
    -The risk of defaulting is however low. 
    -If Kenya settles the June 2024 payment, those who will have invested in Treasury Bonds before June stand to gain as interest rates may fall thereafter.

    CBK continues to borrow heavily locally and interest rates are now hitting record highs. Treasury bill rates are now above 16% and in January 2024, CBK issued an Infrastructure Bond and the coupon (interest rate) is expected to get to around 20%.

     

    However, as the government continues to borrow aggressively locally to hedge against foreign debt and raise funds to meet its obligations, questions continue to arise as to whether there is a chance of default on payments from these local Treasury Products.

    This article looks into Kenya's current debt situation and whether there is a risk in investing in Treasury Bills and Bonds. We will look at the 2022 Ghana domestic debt crisis and the chance that Kenya can go in that direction.

    State of Maturing USD 2 Billion Eurobond at the end of June 2024 

    In June of this year (2024), Kenya must settle USD 2 Billion as a Eurobond matures. Settling this Eurobond would bring relief to the economy as the next Eurobond maturity will be in 2027. However, Kenya finds itself in a financial challenge as its dollar reserves are low and the weakening of the Kenya Shilling has affected the government’s capacity to raise the required funds. Kenya is now relying on bailouts from the World Bank, the International Monetary Fund (IMF) and other international institutions.

    Red Flag as President Ruto's Backtracks on Pledge

    Concerns of a potential for default were raised when President Ruto failed to meet a commitment. He had announced plans for Kenya to pay USD 300 million in December 2023 as a partial settlement of the USD 2 billion Eurobond but this did not happen. 

    What would a default mean?

    In the event of a default, Kenya faces dire economic consequences experienced by countries like Greece, Zambia, Lebanon, and Argentina. Consequences of default would include the government's inability to borrow through Eurobonds, a decline in investor confidence, a weakening local currency, and inflation, among other far-reaching and long-term negative impacts on the economy.

    How would this affect your investments in Treasury Bills and Bonds

    Traditionally, governments are considered least likely to default on domestic debt as they can leverage their control over their local currency. However, the December 2022 default by Ghana on its overseas debt and the impact it had on domestic debt challenged this narrative. 

    What happened in Ghana?

    When Ghana defaulted on its foreign debt and sought a bailout from the IMF and World Bank, these lenders of last resort introduced a unique precondition for the bailout that substantively affected the way we look at treasury products. The IMF required the Ghana government to restructure its local debt so that the pain of default would be shouldered by both foreign and local creditors – including Treasury Bond holders. This restructuring saw a reduction in Bond investors’ principal and a lowering of the Bonds’ interest rates (coupon).

     

    Prospects for Meeting the June 2024 Deadline

    However, there is much hope for the Kenya situation. Signs indicate that Kenya will meet the June 2024 obligation especially because the stakes of a default are too high. A default would jeopardise most government projects as the government would be forced to go into survival mode. This would in turn adversely affect a Kenya Kwanza re-election bid. 

    Besides this, the government is collaborating well with the IMF and World Bank and following through with their bail-out conditions – which include increased taxes and reduced government spending. 

    Which way to go

    In light of this, there is a collective confidence that the country will successfully make the June 2024 Eurobond payment. If it does so, there is an expectation that the government will relax its aggressive borrowing and this will in turn reduce the interest rates on Bills and Bonds. If this does happen, those who will have bought Treasury Bonds within this period before June will continue to reap good returns on their investment for years.