Investments vs. Assets

In the recent vetting of the proposed Central Bank Governor, there was a lot of hullabaloo; first because he is unmarried at 54 and second, that he has no investments in Kenya. I am unconcerned about the man’s marital status because I believe that is neither here nor there in terms of significance. I am however concerned about what I perceive to be Kenyans’ view of what an investment is. I clearly heard the man say that he sold his assets in the US before coming home. I therefore assume that he came back with the money in order to invest locally.

Investment vs. Business

The majority of Kenyans aspire to start businesses which will hopefully enable them to kiss their boss goodbye. They desire to be self employed and be their own boss. What they forget is that they make worse bosses than any boss could ever be. Many shun investment often due to ignorance or lack of awareness. The reason I talk about business is because it makes for the best analogy in explaining what an investment is.

In the book “Rich Dad, Poor Dad”, the author explains that in a business, the owner works for his money whereas with an investment, the money works for the owner. In summary therefore, an investment is an undertaking that continues to generate an income without any regular input of time, effort, or more money by the owner. An investment makes you money as you sleep or do those things that you like doing.

Asset

An asset is anything with a value. When you buy something, you acquire an asset. There are various types of assets. Some increase in value (or appreciate) as time passes while others lose value (depreciate). A popular asset in Kenya whose value appreciates is land.

Most Kenyans, especially from my community, will do anything to own land. One thing to remember however; is that idle land is not an investment in the true sense of the word. This is because idle land does not generate income. If anything, it might cost you to keep idle land. This is due to the fact that it may incur charges in the form of land leases and rates from the Government. Additionally, the land may require security enhancement in the form of fencing and guard services.

Land in many cases cannot be disposed of in a hurry. It therefore ends up tying up your capital. Land is only an investment if it is put to work to generate an income. Two popular options are farming and real estate. For land to be used for farming, it needs to be suitable in terms of size, soil type, and local climate for the kind of crop you want to grow. If it is to be used for real estate, then it has to be in an area where the kind of building you want to put up on it will be on high demand.

If I may ignore smaller assets such as furniture and utensils, the other popular assets among Kenyans are Motor Vehicles. Vehicles, unlike land, generally depreciate constantly from the day they are driven out of the showroom and all the way to when they land in the scrap yard. In addition to depreciation in value, they also depreciate in condition and they need constant repairs and maintenance.

For a vehicle to qualify as an investment, it has to generate enough income to cover depreciation, costs of repairs, maintenance and running, and some profit for the owner. Inasmuch as having a vehicle or vehicles can enhance your social status, you might need to consider other investment options.

Non-Tangible Assets which make Lucrative Investments

There are many successful businesses being run professionally. You can share the in success of such businesses by investing your money in them. You do this in the form of buying shares which are actually a form of non-tangible asset. It is true that all investments involve some level of risk and shares are no exemption. This risk can however be mitigated against by seeking the guidance of professional investment advisers.

Investing in the Government

The budget speech was read recently and as usual, it was quite ambitious. The government said that it will finance part of the budget from taxes and the rest from internal borrowing. It is this internal borrowing that should excite you because when you buy the assets known as treasury bills and bonds, you can sit back and enjoy the fruits of your investment which is 100% secure. For a minimum of Ksh. 50,000/-, you can buy a treasury bond which can pay up to 12% interest – Tax Free!

P.S. When you put your money in the bank and they give you a small interest, where do you think they invest that money? Could it be that they just buy Treasury Bonds and give you a small part of the interest they get?