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A Guide to Personal Financial Planning
Presentation by Hardy Pemhiwa Managing Director HNI Breakfast – Serena Hotel 9th February 2013

Funds

Grow • Accumulate • Preserve

What we will cover
Saving vs. Investing What is available for you to invest in: the risk reward matrix What type of investor are you? Example portfolios for different life stages Barriers to successful investing

2

Funds

Grow • Accumulate • Preserve

What you should get from this workshop
A clear understanding of why personal financial planning is important for your well being An overview of how to make successful personal investment decisions An understanding of how age, family situation and income level impacts the type of investment portfolio a person should have An understanding of the various investment instruments available in the market, their risks and potential returns

3

Funds

Grow • Accumulate • Preserve

Wealth Creation...
‣  What is personal wealth?
‣ 
The total value of your accumulated assets LESS accumulated liabilities

‣  What is wealth creation?
‣  ‣  ‣ 
Accumulation of assets Careful Investing usually over a long period Goal = create a passive income stream

‣  Why create wealth?
‣ 
Quality Lifestyle

Funds

Grow • Accumulate • Preserve

Saving vs. Investing
‣  Savings
‣  ‣  ‣ 
Money in your bank account which is readily available in need Must cover 3 - 6 months of your expenses [Emergency Fund] Readily available to deal with emergencies

‣  Investments
‣  ‣  ‣ 
Money set aside for long term growth Usually value of investments may go up or down Your savings are part of your investment portfolio

Funds

Grow • Accumulate • Preserve

What is available to invest in?
‣  ‣ 
Cash Fixed Income Securities
‣  ‣  ‣ 
Treasury Bonds & Corporate Bonds Treasury Bills Commercial Paper

‣  ‣ 

Real Estate Shares/Stocks
‣  ‣ 
Public Listed Companies e.g. Kenya Airways, Bamburi Cement, etc. Private Companies e.g. your own business

‣ 

Commodities
‣ 
Coffee, Cocoa etc.

Funds

Grow • Accumulate • Preserve

The Risk-Reward Matrix

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Wealth creation 101
‣  ‣ 
To create wealth you need to have an investment portfolio Your investment portfolio is the mix of assets you own:

‣  ‣  ‣  ‣ 

Bank Deposits Bonds Shares Real Estate

‣ 

Your portfolio must be diversified

‣  ‣ 

By asset type If possible by geography as well

‣ 

The returns from your portfolio must be higher than inflation

Funds

Grow • Accumulate • Preserve

Investment Basics
‣  ‣ 
Diversification is key to managing investment risk Unit Trusts are a good and efficient way to achieve diversification

‣ 

Investing in the Amana Shilling Fund, Amana Balanced Fund & the Amana Growth Fund gives you immediate diversification without needing large amounts of money

‣ 

You need a Systematic Investment Plan

‣ 

A wealth-building strategy where you invest a certain amount of money at regular intervals over a long period

‣  ‣ 

It is NOT how much you earn but how much you regularly invest! Rule of thumb – 10% of all that you earn should be invested for your benefit

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Grow • Accumulate • Preserve

What determines your Investment Portfolio?

‣ Age ‣ Family Circumstances ‣ Financial Goals ‣ Investment Environment

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What type of investor are you? ‣  Young Professional ‣  Working Family with Young Children ‣  Peak Earner with Older Children ‣  Empty Nester

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Types of Investment Portfolio
‣  Aggressive ‣  Moderately Aggressive ‣  Moderate ‣  Moderately Conservative ‣  Conservative ‣  As you grow older your portfolio should reflect your
age

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Our lifecycle...

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Young Professional

‣ 

Investment goal
þ  Maximize long term growth þ  Take advantage of time for investment
planning

30% 70%

þ  With no dependents you can afford a
relatively high degree of risk.

‣  ‣  ‣ 

Growth Funds to maximize long term growth Money Market Funds to maximize income on savings Automatic monthly investment plan should be started NOW!

Amana Shilling Fund Amana Growth Fund

Funds

Grow • Accumulate • Preserve

Working Family with Young Kids
‣ 
Investment goal
‣  ‣ 
Long term growth with moderate risk Need to build asset base whilst meeting current obligations

‣  ‣  ‣ 

Growth Funds to ensure capital growth Money Market Funds to maximize safety and income. Continue or increase automatic monthly investments.

50%

50%

Amana Shilling Fund Amana Growth Fund

Funds

Grow • Accumulate • Preserve

Peak Earner with Older Children
‣ 
Goal is to achieve high current income & long term growth 20% 40%

‣ With older children in university, there is a
need to maximize current income

40%

‣ Take advantage of high earning years to
accumulate assets for retirement

‣  ‣ 

Invest equally in Amana Growth and Amana Balanced Funds to maximize growth & income. Invest the balance in Amana Shilling Fund to create a cash reserve

Amana Shilling Fund Amana Balanced Fund Amana Growth Fund

Funds

Grow • Accumulate • Preserve

Barriers to successful investing
‣  Lack of knowledge ‣  Emotion/Sentiment
‣  My friends & neighbours are all doing it!

‣  Procrastination/Inertia
‣  You know but you will not act!

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Time... Your best friend

Investor A starts investing 10 years earlier. Assumed returns = 8% p.a. compounded monthly

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So where do I start...
þ Start with an investment goal – what do you want to achieve & by
when?

þ Invest various proportions of your money into the Amana Shilling
Fund, Balanced Fund & Growth Fund as a way of optimizing your portfolio’s risk vs. desired returns

þ We all desire high returns with minimal risk but… þ ALL investment choices involve a trade-off between risk and
return.
‣  ‣ 
A higher % investment in the Amana Growth Fund generally increases risk but also increases the probability of a higher return. A higher % investment in the Amana Shilling Fund & Amana Balanced Fund will reduce risk and likely result in a similarly reduced return

Funds

Grow • Accumulate • Preserve

Question & Answer Session

OUR CONTACTS

Saachi Plaza Block C, Unit C5 " Argwings Kodhek Road, Kilimani" PO Box 9480 Nairobi 00100" T. (020) 235 1738/41/42 M. 0721 700 076" [@] www.amanacapital.co.ke [e] info@amanacapital.co.ke

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