Managing Investments

ABCs of Investment

Regardless of how much you have available to save and invest for your business, the objective is the same: to make your money grow in real terms. The dynamic operating environment in Zimbabwe makes it imperative for Enterprises to have an investment plan. This essentially means that your number one objective is to ensure that you beat the eroding power of inflation. The rest is a bonus.

This implies that investing is very heavily dependent on the environment you are investing in. How to build a savings and investment plan:

  • Determine how much money is available for saving for the business
  • Find a suitable investment vehicle that is tailored to business and most importantly the size of your investment pot.
  • Stay informed: Even though you would be paying someone else to actively manage your investment, it is imperative that you stay informed as to what you are investing in and what risks are inherent in your fund. In most cases your investment manager does not have his/her money invested in the same vehicle you have thus the risks lie squarely on your shoulders. In most cases common sense is your best guide. If you cannot intuitively understand what exactly you are invested in then its best to ask your investment manager to explain to you. If he/she cannot explain to you in lucid terms, it’s to take your money and find someone else.

Common Investment Avenues

  1. Real Estate:

    • Direct: Purchase of commercial, industrial, and residential properties, agricultural and development land.
      • Salient features: Fixed Income stream
      • Low liquidity- buying and selling physical houses take some time
      • High Transaction costs
      • Returns are not correlated to equities market- diversification benefit.
    • Indirect: Real Estate Investment Trusts (REITs) – publically traded shares in a portfolio of Real Estate
    • Commingled Real Estate Funds (CREFs) – pooled investments in Real Estate which are professionally managed
  2. Fixed Income:

    There are various financial instruments which are common investment avenues. For example fixed term bank accounts. This involves placing your money in a savings account with a bank for a predetermined period of time and earning interest on that account. The risk lies in the strength of the bank you would have chosen. You have to have the confidence that the bank has the ability to return your money when the term is up with the agreed interest. Moreover, you must have the confidence that the bank will not file for bankruptcy during your investment tenure.

  3. The Stock Market:

    A stock market or stock exchange is an institution, organization, or association which hosts a market where securities (equities, bonds, treasury bills) are traded. It is no different to your Flea Market; a central place where trade (buying/selling) can take place. What is on the “exchange shelf” are shares (part ownership of a company) as opposed to bread, tomatoes and other groceries at flea market. The sellers have a price they want to sell their shares, similarly the buyers have a price at which they are willing to buy. If a particular company is traded on an exchange, it is referred to as "listed".

It is generally not advised to buy shares of a particular company simply based on popularity. The complexities required in making a good assessment of which shares to buy and when often go beyond common sense. If this is your preferred investment vehicle it is best to leave this to investment professionals.