Forget hustle culture hype: Here's how to future-proof your investment portfolio

It’s 2045, you’re 65, sitting on your balcony as life slows down. However, your phone buzzes with yet another bill reminder and it hits you that you spent the better part of your earning years chasing shiny things, from the TikTok trends to speculative plots of land that never yielded a cent.

Sounds dramatic? Maybe.

Most people are not financially prepared for the life they say they want. It’s all talk about peace of mind and not depending on someone else’s goodwill when life inevitably throws a curveball.

What's the secret to building wealth? “Start with as little as you have,” says Gerald Gondo, Group Chief Investment Officer at ICEA LION Group.

Mr Gondo has spent years watching everyday people try (and fail) to build wealth by chasing big wins instead of focusing on the fundamentals.

Biggest financial risk

The biggest financial risk most people take is not one of picking the wrong stock or investing in a dodgy venture. He says it’s the false comfort of assuming life will remain smooth forever.

“The main risk that you run by not saving is that you are deluding yourself with the assumption that you'll stay young forever, stay healthy forever, and you are going to rely on the goodwill of friends and family to either help you when you are sick or when you are in a difficult space.”

This mind-set, he warns, is a ticking time bomb. Mr Gondo, particularly to the Gen Z genre, says the goal of saving is not so you can spend it on “Nikes and TikTok and all those things” it’s on preparing for the inevitable unknowns ahead.

“You are trying to future-proof yourself from relying on friends, family and others to bail you out.”

Future-proofing, he says, doesn’t require a huge amount of money but it requires discipline. “You have to discipline yourself on a daily, weekly, monthly basis, as small as it is, because it's a known event. These life events will happen.”

Those who have taken initial steps to future-proof know only too well about the confusion that comes with having too many investments.

Diversification, Mr Gondo says, is a good thing, but points out one runs the risk of going from smartly spread out options to being hopelessly scattered.

“You are everywhere in everything that’s coming up. You want your Sh100,000 to spread itself in Money Market Fund (MMF). You want to have a bond, you want to have an Exchange- Traded Fund (ETF). You want to have an offshore with all this money.”

The result? Chaos. No real growth.

To prevent this, Mr Gondo recommends starting simple. “Let’s start off by just putting the first building block in place of the money market fund. For as little as Sh500 for some money market products, you can start that savings journey and be assured of income every three, six or 12 months,” he says.

Investors can also expand to longer-term vehicles like balance or equity funds, based on one's goals and time horizon. “You need to be all clear when you're speaking to your financial advisor and putting together your savings plan and how long you want to save to match that time frame and your risk appetite with the correct product.”

Read:  Majority of Kenyans have at least two bank accounts for diversity

Rethinking the land obsession

Many Kenyans consider land to be the holy grail of investments. It’s tangible, appreciates and it’s always in demand.

However, Kennedy Otieno, Project Lead at Mi Vida Homes, says land obsession often becomes land hoarding and it’s not the same thing as smart investment.

“It’s not just plain vanilla here, land is finite. There is only a certain amount of land in the world. Buying your first plot? Great. The second? Maybe we’ll look the other way. But by the third one? Now that we have a problem. Why are you buying the third piece of land — something that is not yielding anything for you?” Poses Mr Otieno.

The real estate expert says locking up all your money in land that is not earning you income is poor strategy. You might be “asset rich,” but without liquidity, you are trapped.

“There are times that you need to spend money on things. You have to liquidate that asset to get money for you to invest,” he says

Diversifying within real estate

Think beyond plots. Think rent-generating apartments. Think capital appreciation and cash flow.

“For the same amount, you can buy a unit or a house that can be yielding for you every month. This can give you capital appreciation and give you returns of about 30 percent,” Mr Otieno says.

Everything is about return on investment, he shares his tried and tested investment strategy.

“In the end, whether it’s a marriage, a stock, or a housing unit, if you are not getting return on investment, you don't have business being there.”

Real estate securities

If buying land or putting up an apartment feels like a big leap, there is a more accessible entry into real estate investment — Real Estate Investment Trusts (Reits).

Mathew Maina, Executive Director at Acorn Investment Management, says Reits are not your average stock market play. According to the expert, most Kenyan investors have not warmed up to them.

“Unlike traditional shares that are driven by market sentiment, Reits are backed by real, tangible assets, things like property developments when it comes to commercial and residential. These assets generate income through rent and the performance of a Reit depends on how profitable and occupied these properties are,” he says.

But Mr Maina says there is a catch.

Reits trade based on Net Asset Value, a measure that calculates the value of a company’s total assets without its liabilities. Even if a Reit is performing well on paper, with a high occupancy rates and consistent rent flows, its price on the stock market may fluctuate depending on demand, supply and market psychology.

“You may have a Reit that is highly profitable, with strong fundamentals but because there’s a wave of people selling, the price drops. You’re trading at what we call a discount to net asset value,” Mr Maina explains.

This becomes unsettling for retail investors who are used to conventional logic of good performance that brings higher prices. In the world of Reits, that’s not always the case.

To avoid spooking investors and creating unnecessary price volatility, most global Reits, around 90 percent, according to Mr Maina, don’t list on public markets immediately. Instead, they operate in private or unquoted markets, where the investor base is more strategic and less reactionary.

“If you are preserving capital for the investors, the idea is to give the Reit room to grow its assets and show stability before exposing it to the noise and whims of the main market,” he says.

Still, Mr Maina says with proper investor education and options that demonstrate clear profitability, Reits in Kenya have great potential to be great wealth creation vehicles. But he warns that they are not quick flips.

“They are long-haul, fundamentals driven investments that require both patience and understanding,” he says.

→ [email protected]