FOR any business to grow there is need for setting investment by allocating money or sometimes another resource such as time. Investment is always done in the expectation of some benefit in the future.0 CommentsPeople invest in various areas with different purposes but basically all aim at making profit in future, some of these areas could be investment in durable goods, in real estate by the service industry, in factories for manufacturing, in product development, and in research and development.In finance, the benefit from investment is called a return. The return may consist of capital gains or investment income, including dividends, interest, rental income etc, or a combination of the two. The projected economic return is the appropriately discounted value of the future returns.It is extremely important to understand why you need to and why you should save; however, saving needs to be done the right way that is by investing your money in the market via stocks, bonds, debentures, insurances and mutual funds. However, in setting investments, traders or people face some challenges in the business.In Tanzania, UTT AMIS has been educating the public to understand the challenges of investing. Few weeks ago, UTT AMIS elaborated on the challenges that a person may encounter when looking forward to set up investment. The UTT AMIS Director of Marketing and Public Relations,Daud Mbaga, who exclusively spoke to this paper recently, talked on the factors that need to be well understood when investing in UTT AMIS.Wasted Cash, he said because people occasionally want to withdraw their mutual funds, there must always be funds available - in cash - for payouts. When money’s in cash, it’s not collecting interest. Since this comes from a portion of the investment funds, it means it doesn’t collect any interest for you.That amount of cash is better off sitting in your bank account. Also, Mutual Fund Charges, Mr Mbaga said mutual funds charge fees when you redeem your money. There are also ‘operating expense’ fees. This is a percentage of what it costs to run the fund. Let’s say you invested 10m/- and the operating fees are 2 per cent.This means you are effectively paying 200,000/- every year in operating charges. How does power of Compound Interest affect your investments in a long term? He said the power of compounding interest can be used to demonstrate performance of all UTT AMIS schemes the longer the investment horizon, the greater the compounding.Hence you have time working at your advantage, also higher rate of returns, the more you accumulate. For all other funds managed by UTT we can look at below example with calculation based on assumed rates of return. Actual returns on your investment may be more or less.The illustration is not intended to be indicative of the performance of any specific investment and does not represent a guarantee of return in our scheme, but if in reality historically all our schemes have always been performing at an average of more than 12 per cent. In below example one can analyse 20m/- invested at different rates of return,note how a small change in rate of return affects the expected returns at the end of the tenure, also you can look at how investing in areas where we get just simple interest rates is different from when we invest through compounding interest. Mr Mbaga said according to Albert Einstein: “Compound interest is the eighth wonder of the world.He who understands it, earns it. He who doesn’t, pay it.” He said 20m investment grows at a compound interest rate against simple rate of return over a 30 year period. He explained that Bill Gates once said “it’s not your fault if you were born poor. It’s definitely your fault if you die poor”; you better start becoming an investor now.On Inflation consideration, Mr Mbaga noted as said from various analysis, inflation is a hidden enemy of wealth, it sinks purchasing power as todays money will not buy the same things tomorrow. “You therefore have to have a plan whereby the ‘Real Rate of return’ is in mind which is the actual return from investment minus inflation rate,UTT AMIS has so far managed this very well,” he noted. Equity helps create wealth over long term Equities though they can be a pain sometimes, they are in many cases compounding faster than other major asset classes, making a compelling case for them being essential part of your portfolio, remember a professional manager will help you in choosing the right equities.You should remember that equities are volatile asset class. However, volatility inn returns reduces as holdings period increases. Past performance may or may not be sustained in future. Getting started in investing If you’re a beginning investor, all you need to do now is identify your investing objective,which might be college savings or retirement, and choose the best funds for you if you’re looking for income distribution Jikimu Fund will be ideal, while investing for your children the Watoto Fund will be the best vehicle, as far as growth of your capital Umoja Fund will do and for those who would like Insurance cover you will go for Wekeza Maisha,lastly Liquid fund is there for short term liquidity. The Bottom Line: Why invest Schemes? As with anything in the stock market: there are no guarantees. Like any mutual funds most of UTT AMIS schemes except the Liquid Fund are based on stocks and other investments that can go up or down,performance is not guaranteed with a mutual fund. All we have is past performance to make our decisions. On the other hand, just because a mutual fund loses money one year does not mean it will lose money every year. If you have absolutely no stomach for risk, then maybe stay away from mutual funds.But - if you believe in the financial system, there’s not much harm in trying it out. After all, investing in a mutual fund is way less risky than going for a single stock. The stock markets of the world are a wonderful opportunity to increase your wealth. However, you must bring your brain and knowledge with you when you enter these waters. It’s important that you learn all that you can about the market: how it works,market cycles, how it faces roadblocks and problems, and how you should react to the highs and lows that eventually occur. Now you’re ready to get started investing! Though the list is actually much longer, as a general rule, there are six things you should seriously consider doing if you want to build a successful investment portfolio that can help your familyamass capital, build wealth, generate income upon which to live, and leave a legacy for your children and grandchildren. Some of the items on the checklist may sound overly simplistic, perhaps even trite, but they are vital to reiterate because too many new investors, on too many occasions,think they can ignore these rules and still do well. Decide Upon a Clear Objective for Your Investment. Portfolio You need to know what you expect of your money. Otherwise, you are going to be like a rudderless ship at sea; no direction, no purpose. That’s a terrible situation in which to find yourself, especially as you begin to draw closer to retirement. Keep Investment Turnover to a Minimum. As the saying goes, don’t rent stocks, buy businesses. Turnover has been shown to correlate with poor investment performance. If you aren’t willing to own a business for at least five years, don’t even consider buying shares unless you fully understand and accept, that the short-term stock market is irrational, volatile and capricious.You should want to hold things that grow more valuable over time, producing higher earnings per share and fatter dividend checks. Control Costs by Keeping Investment Expenses Low. Every dollar you give up in fees, brokerage commissions, sales loads, and mutual fund expense ratio charges is a dollar that can’t compound for you. What seems like a small amount of money every year can end up costing you hundreds of thousands,or even millions of dollars in lost wealth that you can never recover; money that went straight into the pocket of big banks, Wall Street and executives. Never Overpay for an Asset, there is no getting around it: Price is paramount to the returns you ultimately earn on your investment portfolio.You cannot buy a stock at an earnings yield that is a fraction of the Treasury bond yield and expect to do well unless it is a turnaround situation that actually turns around, or a start-up with a very high rate of growth. Don’t Rely on a Single Investment, or a Handful of Investments,there is no reason you should have a lot of your money in a single stock unless you are very good at business, could suffer the total loss of your principal, and have a thorough understanding of the enterprise.
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