Creating a balanced investment portfolio

Traditionally, individuals prefer to single-handedly manage their finances secretly. Everyone does it their way, oblivious of compelling reasons behind every investment. All said and done, creating an ideal “investment basket” to suit your personal liking is crucial, hence the importance in seeking investment advice from professionals which will help to choose the right products for the planned duration.

Money Market Funds

Money market funds (MMFs) are collective investment schemes that invest in short-term, high-quality debt securities such as government and corporate debt securities, typically outpacing inflation, providing a better chance of preserving the real value of Investments.  Unlike traditional savings options, MMFs invest in instruments denominated in foreign currencies, offering a hedge against currency depreciation.

They are often valuable for their low risk, stability, and easy access of funds for short-term needs. For instance, CIC Asset Management’s MMF product starts from as low as Ksh5,000 with an average interest of 13 percent compounded monthly while also offering flexibility and access to your funds when needed.

MMFs allow you to create a wealth basket while also taking a proactive step toward financial security in today’s volatile economic times.

With Money Market Funds, investments are spread across various assets, including bank deposits, treasury bills and cash holdings; minimizing your exposure to a single asset class or market risk thus maintaining the fund’s stability and providing a balanced return on one’s investments.

Compounding the interest makes it a suitable investment aside from the monthly contributions. This interest is reinvested into your principal, making sure that your money continues to grow.

A notable concern when it comes to investments is liquidity. In most money market funds, this is made easy as you can recall your funds on short notice ensuring that your money is accessible to you whenever you need it.  Additionally, the fund also shields you from inflation as it allocates your investment across various asset classes including bank deposits, treasury bills, and near-cash holdings.

To make the most of them, keep an eye on the fund’s performance and choose one with a good mix of investments and short investment terms to minimise risk. Prioritise safety by selecting a fund that invests in secure debt, like government bonds and consider a company with a good reputation in the market.

Income Drawdown

Income drawdown is a way of getting one’s pension as a regular income (monthly, quarterly, semi-annually or annually) after retirement while the balance of your pension is re-invested, say in an annuity fund. It acts as an arrangement in which a member opts to access his/her retirement benefits as a regular income through an investment fund from which retirement benefits payments are drawn.

Income drawdown, particularly CIC, offers an individual member flexibility regarding investment choice, frequency, timing and amount of these income withdrawals.

The minimum drawdown period is ten years from the date of commencement of the drawdown, which has been set by the Retirement Benefits Authority. Additionally, a member may withdraw a maximum of 12 percent of the member’s outstanding account balance per year leaving the remaining amount invested guaranteeing returns achieved based on the prevailing market trends.

After the minimum period of 10 years lapses, one is presented with options of either;

●       Continuing with the income drawdown arrangement

●       Purchasing an annuity with the funds or

●       Converting the funds into a cash lump sum for withdrawal.

Annuity Plan

Annuities are financial products designed to provide “steady-like” income over a guaranteed period or for the rest of one’s life. It is typically purchased with a lump sum of money that is converted into a series of payments, which can be made monthly, quarterly, semi-annually, annually, or as agreed upon in the contract.

It is commonly used as a retirement income strategy to ensure a steady cash flow after ceasing regular employment. One can structure their payments to be made on a fixed basis or make them variable according to one’s liking.

A key benefit of an annuity is in its ability to offer a reliable source of income during retirement or other phases of life where consistent cash flow is essential thus playing an important role in one’s financial security.

In conclusion, diversifying across balanced mutual funds can help achieve a balanced portfolio that aims for growth while managing risk. Regular monitoring macro-economic trends and making adjustments will ensure that your investments continue to align with your financial goals and market conditions.  It is also advisable to consult with a financial advisor to help curate plans to meet your financial targets or goals.

The writer, Kennedy Chege Kariuki, is the Senior Investment Analyst at CIC Asset Management and can be reached via [email protected].