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Diversify your Savings, Investments…but where?

Photo credit: Discovery, SA

29th October, 2021

By Julius Masaba

Investing for the future is akin to a bird laying many eggs. Most of us aspire to start up businesses of our own, save and live a good life. However, few of us really know where, how, when, and why we need to invest.

And as we age, we start thinking of saving and investing then we realise it’s too late and our fear of risk is high. I will share with you some of the ways of saving, wealth building, and expecting future income flow particularly in Uganda.

Bank Accounts

Open a bank account to start saving as soon as you enter formal employment or even when you start a business formally, but even without formal employment one can do it. There are many types of accounts to start with, including: like savings, current, fixed deposit account, among others.

But remember bank savings are not “safe” because interest is paid annually and small yet banks keep “chopping” your balances through withdrawal charges, account management/ledger fees, income statement charges et al, so think twice before you subscribe to one; or scout for a better option (such as a fixed deposit or savings account rather than a current account).

Fixed deposit accounts are best and many banks offer one. The advantage with this type of account is that it allows you to deposit a specified amount periodically for a given period of time, say 1 year,  3 years, 5 years, etc, allowing you to depositing every 1 month, 3 months, 6 months, etc.

These days some banks with fixed deposit accounts allow you to use your deposits as collateral/security for a loan. Some offer no limit to maximum amounts. Interest rates may also be negotiable.

Per Bank of Uganda (BOU) statistics, the November 2020 fixed deposit rate was 10.27% – not bad, but again it went on falling through the lockdown and hitting 8.01% in June 2021.

Some microfinance banks also offer interest on consistent deposits and even allow you to make withdraws anytime. The bigger or frequent the deposits, the better.

NSSF and Other Funds

There’s social security and retirement benefits schemes (pensions). In Uganda, National Social Security Fund (NSSF) handles this. As long as your employer has more than 5 employees, join the Fund – you’re eligible. Civil servants are pensionable, they don’t join NSSF.

But it takes a few decades to access the savings! Savings are always safe, offer high future returns due to high interest rates; plus, the Fund invests in shares, real estate, etc. But other private players have emerged due to liberalisation e.g., Mazima Retirement Plan; competition via interest rates can manifest.

There is also the voluntary membership for those whose employers have less than  five (5) staff or running informal business.

Unfortunately, at times there’re low interest rates, loss in value due to inflation or being mismanaged; or if the Fund invests the savings in highly risky ventures, though unlikely.

I advise you to pick or subscribe to a Fund that will allow you to get your savings easily upon retirement or maturity.

Insurance Policy

There’s also insurance cover, insurance policy/subscribing to an insurance scheme. This cover is advantageous especially for a person, his or her family and relatives.

In case of death, claims made (cash proceeds) can be used for future investment, in assets or starting a business. Or still be transferred to your next of kin like children where they can benefit by having their education covered.

Insurance cover gives you chance to diversify risk as well as be a savings vehicle. Some insurance companies have investment advisors to help clients or people invest those insurance claims.

Unit Trusts

A unit trust is a collective investment vehicle that brings money together from other investors and managed by a professional fund manager who invests the money in a different financial portfolio like treasury bills, bonds, shares, and other money market instruments.

These are a part of the investments undertaken by insurance companies like UAP Old Mutual, ICEA Asset Manager, etc. These are unit  trust managers licenced and regulated by Capital Markets Authority (CMA).

The advantage with unit trusts is that the minimum amount is not high (just UShs100,000), you get compound interest, you can access your invested amounts any time and offer  you  saving avenue while making money (earning interest) at the same time though the interest is not fixed – can vary depending on market performance.

Unit trust investments were the talk of the town during lockdown and after. You should invest in one.

Stocks/Shares/Bonds/Treasury Bills

Stocks/shares and securities like treasury bills/government bonds are preferred too. Shares are held by an individual or business usually in blue-chip companies. One can have as many shares in many companies as one may wish.

They are transferable any time, say to a family member, a creditor et al, through shareholding certificates. They earn dividends annually when profits are made. You should have some shares in these companies like UMEME, Stanbic, Baroda, DFCU, NIC, etc.

Stocks and shares have very high price fluctuation tendencies or volatile, making it hard for one to resell/get back one’s invested at short notice.

Currently, MTN Uganda is having an initial public offer (IPO) and you need to buy some shares as low as UShs100,000. The good news is that you can even open a trading account through MoMo. That’s how easy it has been made for the ordinary person you call ‘muntu wa wansi’.

The IPO kicked off on Monday and ends on 22nd November this year. The minimum is 500 shares, and each share is at UShs200. There are 10 bonus  shares when you buy the  shares through MoMo. So, grab the opportunity.

However, beware that stock prices go up or down and you may gain from or lose your investments.

Government issues treasury bills (TBs) on short-term usually 91 days, carry a rate of interest and given after maturity period.

Unlike bonds, which don’t offer the option of interest payment; instead, their maturity value will be higher than the invested value depending on the prevailing rate of return.

They are among fixed-income investments and not so much utilized by the Ugandan public, yet very rewarding.

Per Bank of Uganda (BOU) statistics, the June 2021 interest rates for the various securities were:

  • T/Bills (364 days): 9.14% (Dec 2020: 111.91%)
    T/Bonds (2 years): 15.25% (June: 11.50%)

It’s even better than the fixed deposit rates, as of June 2021!

Real Estate/Property/Vehicles & Machinery

Investment in real estate, fixed assets like land, buildings, et al is viable too; they increase in value over time.

Vehicles and machinery are assets too but depreciate in value thereby having a lower resale value than their cost price; unless they have been adding value to your investment.

Much as it’s a brick and mortar investment, it tends to tie up what would have been useful capital for cashflow. However, they can be hit by floods, fire, et al. Such risks lessen the value of the assets over time, global real  estate bubbles inclusive.

Depreciation is another disadvantage though some assets can be revalued or still maintained (like painting structures/buildings) and or to maintain their resale value.

I know one gentleman in his early 60’s who has preference for old heavy duty machinery, cranes, etc. He does not use them as scrap, but his belief is that old models are stronger, durable and just need remodeling, repair and maintenance for continued use.

That said, you can utilise all the above avenues to save and invest and grow your wealth. You can subscribe to NSSF and have insurance cover, you can have a fixed deposit account and also invest in unit trusts, you can invest in real estate like rental units for fixed income as well as taking up an insurance policy or purchase of treasury bills every quarter, etc.

The choice is upon you while considering your current cash flow and financial standing. But, for your long-term investment goals, having at least have three diversified investments is a good start.

The aim of having multiple long-term investment options is to ensure continuous flow/a stream of income in future and diversifying your portfolio can help you create more future wealth while countering the risks of putting all your eggs in one basket.

This article first appear on BizCommunity by the same author and also on Medium. Click here.

About the Writer

Julius Masaba is the Team Lead at Leanfoot Ventures, a private investment research and business consulting firm; a WordPress writer/blogger on startups, entrepreneurship, business, and finance. He’s also the Business Development Lead at Ablestatehttps://www.theablestate.com/. He loves tech.

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