My name is Hannah. I am single, aged 37. I earn a net salary of around Sh84,000 per month. My expenses are as follows: Rent Sh24,000, shopping Sh20,000, fare Sh3,600, tithe Sh8,000, chama Sh5,000, mom Sh5,000, merry-go-round Sh2,000, personal care Sh5,000, airtime Sh1,000, pay-TV Sh2,500, miscellaneous Sh3,000, savings Sh2,000. I have savings of Sh460,000 in my bank account and I can access Sh280,000 from my chama.
I have always wanted to invest in the stock market and in 2026, I want to put money in shares. I am wondering if I should invest in the Kenya Pipeline Company initial public offer. Is this a good decision? How do I go about it? How much money will I make? If it is not a good decision, what other shares should I buy?
Robert Ochieng’, the founder and investment advisor at Abojani Investments.
At 37 years old, you ought to set up investments that can compound for the next decade, culminating into a sustainable cash flow portfolio that can assure you of a comfortable retirement. Typical long-term goals include home ownership and adequate medical insurance that takes care of chronic illnesses associated with old age. You may also take short career courses to boost your pay through promotion. Increased income will avail more disposable cash for investment in diversified assets classes. With savings of Sh460,000 only, you should do more at your age to grow this to at least Sh1.5 million by age 42.
Monthly investments of Sh12,000 in a mix of assets can easily top up Sh1 million in five years through reinvesting dividends and interests. Your budget reveals unaccounted cash of Sh3,000. You could save more by adopting a leaner budget with minimal disruption of your lifestyle. Key expenses like rent and shopping consume more than half of your income. Control over these areas can result in prudent spending that increases savings. The 50:30:20 budget formula will inculcate disciplined spending, hence more savings for personal growth and wealth creation.
Out of the Sh84,000 net income, you can allocate as follows:
—50 percent to needs: Sh42,000
—30 percent to wants: Sh25,200
Total - Sh24,500 (surplus Sh700)
—20 percent to savings and investments: Sh16,800
—Merry-go-round : Sh2,000
Total - Sh9,000 (surplus Sh7,800)
With Sh8,500 surplus, you can create other investments apart from the savings you currently hold. You have put all your savings in low risk, low return tools like chama, merry-go-round, and bank account. While these are savings instruments that enforce discipline among members, they are not very efficient for serious wealth creation. Wealth is largely created from your money working harder though compounding. If you had kept the Sh460,000 in a money market fund, you would earn at least Sh48,000 in the first year, at an assumed net interest rate of 10 percent per annum. Keeping it for five years without additional monthly top ups will add up to Sh760,000.
Before investing in the stock market, you need to have at least three months equivalent of regular expenses in an emergency fund. This should be at least Sh250,000. It assures that in case of a job loss or medical emergency, your long-term investments in the stock market remain uninterrupted. This fund is best kept and left to compound in a money market fund.
To invest in the stock market, you need to have a brokerage account commonly known as a shares CDS account with a licensed stock brokerage firm or custodial agent. Leading investment and commercial banks offer this service.
You will be able to buy Kenya Pipeline Company shares after successful activation of your CDS account. The primary market for investing in company shares is the Nairobi Securities Exchange. With a CDS account, you can invest in shares of profitable growth and dividend paying companies like Absa, BAT, Co-operative bank, NCBA, Carbacid Investments, Standard Chartered bank, Safaricom, Kapchorua Tea, etc. You only need to buy a single share to be a stock market investor.
For the Kenya Pipeline Company IPO (Initial Public Offer), you buy a minimum of 100 shares at Sh9 each. Buying shares via IPO can be profitable if the company prospects are solid. You might achieve capital gains if the stock rallies above Sh9 when trading on its shares goes live at the NSE. At current offer price, the company's PE ratio is 21.83. The total issued shares are 18.2 billion which places the value of the company at Sh164 billion.
As a first time investor, you need to understand that you could potentially incur paper losses if the share dips once trading kicks off at the NSE.
Whether you should borrow from your chama to invest in stocks is a consideration of the interest rate you would incur. Stock investing doesn't give regular returns that could service a loan. Besides, it depends on the quantity you have bought and the size of dividends you would earn. Thus, stock market investing is largely funded from savings or liquidation of existing investments.
From the Sh8,500 modified budget surplus, taking a diversified approach may entail buying 200 shares of Absa or Co-op, or 600 shares of Kengen monthly for about Sh5,400; and investing Sh3,100 monthly in a bond fund with a 12 percent annual return rate.
If you have any money problems, send us an email at [email protected] and leave your number for contact. Money questions will be answered on this column
