Investing is as tricky as gambling. You could lose quite a chunk of money, and you could also make quite a chunk of money. Finding investments that actually help you earn some extra cash can be challenging. Why? Because financial literacy takes a lot of groundwork and contextualized research.
One of the common reasons why people refuse or are scared to invest is because they don’t want to lose their money. It’s definitely not an irrational fear, because, well, you have probably heard of companies collapsing and people losing their millions. So yes, it’s good to be cautious about where you put your money.
At the same time, we must learn to tame this fear. Why? Because failing to invest your money makes you lose the money. What 100 shillings can do for you today, it will not be able to do for you in five-ten years. Why, again, you may ask? Because of this thing called inflation.
By definition, inflation is the decline of purchasing power of a given currency over time. It is the rise in the general level of prices, often expressed as a percentage, which means that a unit of currency effectively buys less than it did in prior periods.
Currently, in Kenya, the inflation rate stands at approximately 5%, according to Statista. What does this mean? Prices are constantly going higher, and the value of the shilling is decreasing.
You have probably heard stories of how bread was once 2 shillings, and bus fare 50 cents, and school fees 800 shillings. Today, a loaf of bread is 50 shillings. So, years ago 2 shillings could do something for you, and now the most it can buy is a sweet. This can be attributed, at least partly, to inflation.
It can be frustrating to think that your money is losing its value, almost daily, but most economists consider a small amount of inflation a sign of a healthy economy. Even so, it becomes necessary to beat inflation. How do you do that? By investing your money in certain assets.
When you choose your investments and especially long-term investments, you must make sure that the interest rate is higher than your country’s inflation rate. You need to check for the current inflation rate since certain factors affect it and it may change over time. A good investment helps you to beat the inflation rate in your country by earning you more money. It increases the value of your initial investment, even as the inflation rate increases.
Keeping your money under your mattress or in an institution that has low-interest rates makes you lose the money. Because in a few years to come, your 100,000 shillings will not be worth what it is today. It will be worth much, much less. You will be the loser of that money if you refuse to invest. You can take advantage of investments like bonds, real estate, and money market funds to stay on top of things, literally.
However, I must add that even inflation affects your investments. The positive side of inflation is that an investor can take advantage of a particular asset class’s rising rates. The con of it is that some investments may not generate sufficient income against the unavoidable deductibles, such as income tax and subsequent inflation of the revenue. As an investor, you ought to know the circumstances under which the asset classes are best apt to fight inflation.
Don’t be scared of investing your money. Do your due diligence, and diversify your investments. Hoarding your money will make you lose it because the currency will eventually be devalued. See you on the other side of fear!
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