Understand Investment Stages & Risk Appetite
The question many of us ask ourselves is what is the best investment vehicle out there. However, the right question to ask is what kind of investor am I and what investment vehicle is suited to me and my situation?
There are generally 3 stages of investors: pre-investor (where many of us are), passive and active investors. The good thing is that each investor stage builds on the skills of the one before it. Therefore, no matter what type of investor you are now, knowledge is all you need to move to level up.
A pre-investor is simply someone who isn’t investing in anything, anywhere. They have little awareness of investment options and are most likely signed up for statutory investments like NSSF by default of being employed somewhere. Without this requirement, they’d have nothing in the way of investments.
The pre-investor’s lifestyle is defined by consumption rather than savings and investments. It is not bad in and of itself but a little more information would help them decide better in terms of investing.
Second up is the passive investor who is probably living busy lives, raising families, sustaining jobs, hobbies or building businesses. It is a little difficult for them to make investing a top priority but they tend to know and apply foundational investment principles to attain financial security.
Passive investors generally tend to own their own homes, have appreciated assets, and save at least 10% of their earnings. While passive investing is better than not investing at all, it lacks many risk control strategies which in turn reduces the amount of control this kind of investor has over their financial security.
Finally, we have an active investor, who runs their wealth like a business enterprise. While passive investors work hard to acquire and save money, active investors spend less energy making their money work for them. However, as attractive as this is, active investing is hard work and that is why it is not for everyone.
Investment Risk Appetite
There is no right investor stage to be in, it all depends on what you have, where you are in life and what you are doing. For example, someone setting up a business should be focusing on that and not necessarily being an active investor.
While someone with low income at the moment can consider being a passive investor at first, before later taking up active investing if their returns grow and they have more time on their hands. At the end of the day, figuring out which type of investor you are will also help you gauge your risk appetite. Risk appetite simply put is the amount of prospect that you, as an investor, are ready to take to attain financial security.
Understanding your risk appetite will also help you know what products in the market are for you at that particular time. Should you stick to fixed deposits or take up cryptocurrencies? Should you buy land with a chama or look into unit trusts? It all depends on your risk appetite.
Join us for an interactive webinar where you will learn more about starting an investment journey. In this session, you will be clued in to how to evaluate your risk appetite and walk you through questions to ask yourself as an early investor.
The webinar will be fantastic for you if you:
- Are keen to start investing but not sure where to start,
- Desire to know more about available investment tools & options in Kenya, whether you are an early or seasoned investor,
- Want to know how much you need to start your investment journey.
Interested in attending this webinar? Register here.
About the Speaker
Paulyne Wairimu is a Financial Coach, Trainer, and Speaker. CEO and Founder of Debt Management Solutions. She is a Certified Financial Coach, Certified Trainer, and Speaker and has offered debt training as well as investment and risk management advice since 2015.
Koa is your companion to financial wellness. Our mobile-based app allows you to easily set up savings goals and put money aside for the future. With a return of up to 10% p.a you can access financial services at the tap of a button.
Koa is dedicated to helping young people take back control of their financial future and realize their money goals through personalized, goal-based targets that put users on a clear and visible path toward financial freedom. Read more about how Koa works here.