Everything You Need to Know to Start Investing in Kenya

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If you're looking for a simple, step-by-step guide on how to start investing in securities in Kenya, congratulations, you've found it!

In this guide, we'll:

Cover what investing is and how it works, see how you can prepare yourself to get started and walk you through the options available once you're ready to go.

You'll see how you can go from zero to investment-ready shape. You'll learn about different investment assets. And we'll link you to other helpful resources to build upon what you learn.

Sound good?

Okay, let's dive in...

What is investing?

Put simply, investing means buying assets you believe will either generate an income or increase in value in the future.

It entails purchasing securities (like stocks or bonds), real estate, and other items to make a profit or capital gains.

As an investor, you'll spend money to acquire an asset with the expectation that it will either pay you or become more valuable or both.

Therefore, investing is the pursuit of financial gain through the ownership of assets.

How investing works

An investment is an asset that has been bought with the express aim of making more money. It can achieve this in two ways:

  • Income generation - where an asset returns a regular earning for the owner. Assets like dividend stocks pay dividends, real estate properties generate rent, and bonds pay interest.
  • Appreciation (or capital gains) - whereby the cash value of an asset increases over time. It’s realized when you buy an asset at a low price and sell it at a higher price. Stocks rise in value when the company performance increases, real estate rises in value if development increases, and so on.

By acquiring an asset that has either of these qualities, you’ll be on your way to unlocking more value from your money.

In Kenya, several ways exist in which you can begin investing in such assets. They include stocks, bonds, real estate, and even alternative investments like crypto.

Setting up: Preparing to begin investing

Before we jump in, let’s touch on the topic of risk just briefly.

No asset is guaranteed to make you money. There’s always the likelihood of something unexpected happening and losses resulting from it. And this can be anything from personal reasons to asset-specific issues to larger economic causes.

As an investor, it’s going to be your job to protect yourself from such risks. And the best way to achieve that is to start with a strong foundation. Cover all the fundamentals and you’re more likely to weather any risks that come up.

So the following steps should be seen as the bedrock of your investing foundation.

1. Take stock of your finances

Assessing your financial position is the investing equivalent of knowing yourself.

It’s important because all subsequent investing decisions will rely heavily on this info. You’ll gain a true picture of your current financial status, thereby providing a strong basis for making practical and informed investments.

It would be counterproductive to choose an investing strategy, only to abandon it midway because you lack the resources to see it through. Assessing your financial capabilities and shortcomings will help you avoid such a scenario.

To gain this clarity, start by taking stock of your income, your debts, your expenses, and any existing financial plans that you already have in motion.

You’re simply trying to get a good picture of your true financial position. So be honest with yourself because this will guide every other decision you make going forward.

What is the size of your income, your liabilities, and other financial obligations?

2. Manage your debts (if you have any)

Jumping into investing without taking care of your debts is akin to starting a journey with a steel ball shackled to your foot.

Debts don’t just slow you down, they actively threaten any investing progress you’ll make.

So how do you deal with them and still invest at the same time?

Simple: Factor your debt into your financial plan.

Dedicate a chunk of your monthly finances to cutting it. Reduce it down to a manageable level, little by little, over an extended duration.

That way, you can start investing while you’re also servicing your obligations. This is much better than waiting for several months to clear them all before you start investing.

What is the size of your debts? How much will you spend (monthly) to reduce it?

3. Track your spending (through budgeting)

Blindly spending your money - even on things that may seem affordable - can slowly eat into your goals.

A night out here, a pair of shoes there, a new set of headphones…

These seemingly minor purchases can add up to a substantial amount that could instead be spent on income-generating assets. Tracking your money helps you shine the spotlight on such spending habits.

This isn't to say that you should live like a hermit and not enjoy your income. On the contrary, it means that you can be mindful of what you enjoy, while also reaching for your goals.

Tracking your purchases means you’ll be keener on where your money goes, and so you’ll have fewer unplanned expenses.

Can you account for your income? Are you aware of where your money goes?

Read Also: The 50-30-20 Budget: How to Take Control of Your Money

4. Build your emergency fund

An emergency fund is a reserve of money set aside for urgent and crucial but unplanned expenses.

Think of the day you lost your phone in the middle of the month. Or that time your fridge broke down unexpectedly. Or that unexpected hospital bill.

Emergency funds ensure that you don’t fall into debt and ruin your financial plans when the unexpected occurs.

The ideal emergency fund should have enough to cover about 3 months of necessary expenses. However, it’s up to you to decide how much you should set aside depending on your needs and capability.

How much can you save consistently each month?

Suggested: How to Build an Emergency Fund in 3 Simple Steps

5. Start growing your money

At this point:

  • You understand your financial position,
  • You have a plan to attack your debts,
  • You have a budget, and
  • You’ve begun building your emergency fund

Altogether, these steps form a stable foundation. They provide a solid financial framework because they all ensure that you’re reasonably protected.

You can now focus on the real job: investing.

The goal here is to take advantage of high-leverage opportunities to create long-term wealth. Investing achieves this by relying on the ownership of commercial assets that either increase in value or generate income for you.

In the next section, we discuss how to get started on this...

Are you familiar with money-making vs money-growing models?

Suggested: 7 Proven Passive Income Ideas in Kenya

Getting started: Investing for beginners

Any beginner investing from scratch has the problem of too much choice.

Too many investment products exist, all promising incredible returns. This abundance of choice is precisely why you need clarity before you spend even a shilling.

For this reason, it’s important to begin by specifying what you want. This will help you narrow down the sea of options and choose an asset that’s the most compatible with your goals.


6. Identify your investment goals

A financial plan is like your roadmap i.e. how you’ll go from where you are (based on the assessment in section 1) to where you need to be – financially.

It consists of your ultimate goal and the specific actions that’ll get you to this goal.

The goal you set can be short-term, medium-term, or long-term. And the actions you’ll take should be defined clearly and tangibly.

If you plan to invest each month, specify the exact details that will guide your actions.

Concrete goals give you clarity because you’ll know exactly what you’re after. This, in turn, helps you select the best investment assets that suit your own specific needs.

What is your goal? Saving for retirement? An education fund for your children? Building wealth?

Related: 7 Common Investing Mistakes Beginners Make (and how to avoid them)

7. Determine your risk tolerance

Now to the all-important subject of risk.

In investing, as in any other business, there is no guarantee that you’ll always make profits. This possibility of making a loss is what’s known as risk.

Risk tolerance, therefore, is your ability to withstand any losses you might incur between now and the achievement of your goal.

If your goals are too far away i.e. long-term, you have more time to recoup any losses you might incur before you run out of time. This means that you have a high-risk tolerance, and so you can invest in riskier assets that have better returns.

But if you have short-term goals, you should avoid risky investments since you’ll run out of time before you can recover from any losses incurred. This translates to a low-risk tolerance.

A high-risk tolerance permits you to adopt an aggressive investment strategy. You can invest in volatile assets like stocks since you can recover in time for your goals.

A low-risk tolerance, on the other hand, means that you have to invest in safer instruments like bonds. This is because you’ll need the money back soon, so there'll be no time to recover fast enough in case of any losses.

As you can see, the main determinant of your risk tolerance is time. And as such, your goals can be a good indicator of your risk tolerance level.

What is your goal timeline? Based on this, what is your risk tolerance? 

8. Decide between DIY investing or hands-off investing

Do It Yourself investing means that you’ll be personally in charge of your investments.

You’ll be responsible for identifying and buying the right assets, managing your portfolio, and accounting for your investment performance.

This is different from a hands-off approach, where a professional will run your investments for you. They’ll apply their experience and expertise to invest on your behalf.

Each mode has its advantages and disadvantages. The DIY approach has the benefit of being affordable though this is offset by the fact that you’re not a pro – so you might make costly mistakes.

The hands-off approach grants you access to professional expertise but it comes at a financial cost.

Ultimately it’s up to you to decide but as a beginner, the hands-off approach is the better option. You can learn how various assets work in the meantime and then revert to DIY investing once you gain more insight and skills.

Do you understand how different financial assets work?

9. Establish an investment schedule

As mentioned earlier, your plan consists of a destination and the specific steps that you’ll take to reach it.

Your investment schedule outlines the tangible actions you’ll take on a habitual basis to reach that destination.

To come up with a practical schedule, ask:

  • How often can you comfortably invest? (weekly, monthly, quarterly)
  • How much will you invest per session?
  • What will you invest in per session? (based on your risk tolerance)

Settle on an amount that you can comfortably put aside without stressing your other finances. This is important because you don’t want to get overwhelmed midway and give up before you make good progress.

For instance, you might decide to put away 1,500 each month and invest it in a money market fund or a bond fund for the next 12 months.

The objective here is to develop an investing habit. So design a schedule you can keep up for longer. You can always increase the amount later once you’re more financially established.

How much can you afford to invest each month?

See Also: How to Formulate, Simplify, and Stick to Your Investing Habits

5 ways beginners can start investing in Kenya

Now that you’ve thought about how to invest, the next question is: what do you invest in?

This section will cover the most common investment options available and how they work. Here’s a brief look at the most suitable options for beginners:

1. Invest in Stocks

Risk Level: High

Time Horizon: Long-term (10+ years)

Good for: High potential growth

Also known as a share, a stock represents a piece of ownership in a company or a business. So by owning it, you become a part-owner (or shareholder) which grants you a financial claim to the company’s profits.

Besides the profits, you also benefit when the value of the company grows. This is because the value of your share is tied directly to the company’s monetary value.

Selecting good-quality stocks can be complicated because there are just too many factors to consider. So as you start, it's advisable to have an experienced professional do it on your behalf.

The best way to do this in stocks is to invest in either a mutual fund or an ETF.

If you prefer, however, you can still do it yourself. Plenty of investment apps allow for the quick and easy purchase of both local and foreign stocks.

Some of the most common ones include the Hisa App and Abacus.

Further Reading: How the Nairobi Securities Exchange Works

2. Buy low-risk bonds

Risk Level: Low

Time Horizon: short- to long-term

Good for: Stable, low-risk investing

Bonds are essentially loans that are provided to big organizations (like corporations and governments) by investors.

The investors play the role of the bank while the organizations play the role of the borrower.

In exchange for the loan, the organizations agree to pay the investors a periodic interest payment. This payment is made on a pre-determined interval which can be quarterly, semi-annually, or even annually.

Once the loan attains maturity (i.e. the loan duration expires) the organizations repay the principal to the investors.

Since bond payments are usually predetermined (and therefore predictable), bonds are said to be safer than stocks. And it’s for this reason that they are important – because they can be used to offset the risky nature of stocks in your portfolio.

Further Reading: Bonds in Kenya: Everything You Need to Know

3. Use mutual funds for diversification

Risk Level: Moderate

Time Horizon: Medium to Long-term

Good for: Instant diversification

Mutual funds are pools of investors who come together intending to invest together as a single unit.

Various, like-minded individuals combine their money, and then use part of it to hire an investment professional who invests on their behalf.

They are usually focused on specific assets. Some mutual funds invest only in stocks, others only in bonds, and others specifically in real estate.

Once profits are generated, a part of it is used to cover the cost of investing, and then the rest is split amongst the investors.

Mutual funds are ideal for rookie investors because they take the complexity out of investing. As a beginner, you only need to identify a fund you prefer and pay the minimum required to join (usually less than kes 1,000).

But before you join one, look at the fees they charge and ensure they are not expensive. High fees will eat into your profits and undermine your long-term goals and performance.

Further Reading: Your Complete Guide to Mutual Funds in Kenya

4. Invest in real estate co-ownership

Risk Level: High

Time Horizon: short- to medium-term

Good for: Alternative Investing

Thanks to new forms of investing, you don’t have to be rich to begin investing in real estate. Crowdfunding has made it possible for everyone to get into the space without necessarily having to break the bank.

In Kenya, one such way is through a Real Estate Investment Trust (REIT).

REITs work the same way mutual funds do in that they consist of investors who come together and combine their resources. In this case, though, they invest exclusively in real estate properties.

A small fraction of the money is spent on hiring a real estate professional to manage the investments on the group’s behalf. Depending on the group’s goals, the investment managers can either identify and buy existing properties or develop new ones from scratch.

They then earn an income by charging rent, or selling the developments and splitting the profits among themselves.

To invest in them, you have to buy shares in companies that operate as REITS on the Nairobi Stock Exchange. There’s only one publicly listed on the exchange (ILAM I-REIT) at the moment, but there are several other private REITs as well.

Further Reading: How to Start Investing in Real Estate with Zero Experience

5. Invest a small portion in cryptocurrency

Risk Level: Very High

Time Horizon: Mid- to long-term

Good for: Younger or Risk-friendly investors

Crypto investing has come a long way since the late 2000s. It’s no longer the obscure space it once was. Many fortunes have been made since then, but this doesn’t mean that it's too late to get in on the action.

The value of a crypto coin relies solely on its utility. The best ones have potential uses in the commercial world and will be applied to solve day-to-day problems in the future. It’s important to consider this as you decide on what you’ll buy.

Bitcoin and Ethereum are the most popular, but there are plenty of other niche coins that boast impressive use cases, making them potentially valuable. Coins like Cardano, Solana, and ZCash fall into this bucket.

The essential first step is to do your research. Find the crypto that you believe will have some utility in the future.

Once you settle on a choice, you’ll need to find an Exchange to buy it from. In Kenya, the most common ones are Binance and Paxful, which allow you to buy using M-Pesa.

With your crypto, you can make a regular income from it through staking. This is where you loan your crypto out to 3rd parties, and they pay you regular interest in return.

Note that crypto is an extremely volatile asset and so you should understand all the risks before going in. Only a tiny portion of your investments (about 5%) should be allocated for this purpose.

Warren Buffett’s First Rule of Investing

“The first rule of investment is don't lose [money]. And the second rule of investment is don't forget the first rule.”

As an investor, your primary goal should be to protect your initial invested capital.

The obvious first step to achieving this is to invest in a good asset in the first place. Ask yourself whether you’ll be comfortable holding the investment for at least a few years before you buy it.

Ask: how is the underlying asset going to maintain and increase its value?

Be so confident that you own a spectacular asset that you ideally wouldn’t sell it in your lifetime.

Next, aim to diversify your portfolio. Rather than investing exclusively in stocks, consider buying bonds and REITs too. Instead of investing all your money in a single stock, spread it out to different stocks in different sectors.

Don’t put all your eggs in one basket. So that in case any single asset or industry is hit by a negative business cycle, your other investments will offset the effect.

A simple way to achieve automatic diversification is by investing in mutual funds.

Another strategy is to use Dollar Cost Averaging. This is where you spread the purchase of your selected investment into intervals, instead of buying in one lump sum.

How does this help? Over time, it results in acquiring the investment at a lower price. And this is because it takes advantage of price fluctuations in the market.

The main thing to remember about risk is that the quality of the chosen asset should be great. Everything else will only work if you own a good asset in the first place. So make sure your investments match your needs and are also inherently valuable.

Suggested: Diversification: How to Protect Your Investments from Loss

Finishing Up: Bottom Line

Attaining financial independence starts with understanding the fundamentals of investing.

With the fundamentals, you can get a grip of where you are, and then you can build on that to create long-term wealth.

This all starts with taking stock of your current financial situation. Follow this up by getting your finances in order and then determining your goals and needs.

Finish up by building an emergency fund and only then focus on investing – after you’re sure you are well protected.

Understand that successful investing is all about being consistent with your actions. It’s also paramount that you begin early. The more time you have to grow your investments, the bigger your nest egg will be when you’re done.

Good luck!