Investment Strategy

Your investment strategy will determine your investment portfolio. Your investment portfolio varies with your age, income streams and current goals. In the long term it should have a strong focus on passive income.

Your investment strategy should include  a balance among the various investment options:

1.  Money market investments- highly liquid. These help create an ability to fund short term needs without resorting to debt. They can fund school fees, local vacations. This ideally would suit money market investments. Ideally it should be just a small portion of your investment portfolio as the returns are generally low. This portion is critical as cash is king. Sometimes if there is no meaningful investment option after harvesting one can park their cash into this pot. This gives the investor flexibility when good investment opportunities suddenly arise. However be careful not to keep too much cash or near cash investments as these will result in opportunity costs.

2  Stock Exchange investments- highly-moderately liquid. These allow for rapid deployment of funds and partial harvesting when ever near cash resources are exhausted. They are highly volatile but generally with good returns.

3 Real Estate investments- generally low liquidity (at times highly liquid in Zimbabwe) but very good store of value. Generally most wealthy people store their wealth within these investment category.

4 Business that generate cash are a great way to leverage other people’s time and labour. It is however important to ensure that as soon as possible this business does not totally depend on your own sweat. It should be built on a self-sustaining system.

An ideal portfolio should:

  1. Be hedged against inflation
  2. Be hedged against the falling currency
  3. Well diversified (asset class)
  4. Have a short pay back period
  5. Be liquid & in high demand for easy sale

Although there is much talk about asset allocation and asset rebalancing, it goes without saying that for a serious investor the bigger portion of one’s investment portfolio will be biased towards real estate. Ensure that you stabilize your investments with solid assets in the real estate sector.

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  • Reply Tariro Musi October 20, 2010 at 9:43 am

    This may sound silly but how does one enter into real estate investments with a very small investment amount. And this is me assuming that one initially needs large investment capital to enter the business, or is it better to wait till the capital grows…

    • Reply nurturingchampions October 20, 2010 at 9:54 am

      Tariro there is no silly question. In most countries you can invest in real estate with little or no money at all using the “nothing down” technique. This is currently hard to do in Zimbabwe because the mortgage funders are not fully functional yet. However you can either team up with others and share the investment. Once you do this a number of times each of your team members can begin to work alone. You can also source deals and then find partners who can participate with you. Finally you can invest in stocks and grow your capital until you can move into real estate.

  • Reply drtaffie October 20, 2010 at 12:31 pm

    Allow me to add insurance as an investment class. For example ecolife, however a more detailed explanation will assist. By insurance I mean life insurance, accident insurance, retirement insurance. The insurance product you choose should payout when you need it. I have seen the value of insurance, one friend got income protection insurance, injury insurance and accident insurance and sure enough he got into a minor accident and got injured he was paid out 3 million AUD four weeks later in March this year.

    • Reply nurturingchampions October 21, 2010 at 9:00 am

      Its true Dr Taffie. We will discuss insurance later especially when we talk about wealth management and protection mechanisms for one’s wealth. Insurance on products is a great way to secure your investment. At this stage as Zim is turning around insurance products are not yet sophisticated and so am not sure yet if any insurer is issuing say the income protection insurance. this used to be available. i will just recheck the state of the insurance market.

  • Reply drtaffie October 21, 2010 at 11:09 am

    I think another strategy would be to educate yourself on the investments listed above. Attend seminers and sigh up for similer network. The more financial education you get the better choices you make and the more you gain control over your emotions.

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