Principles of Investment Told in 7 Useful Analogies
This is a snippet of Monday’s conversation on 360Mentor hosted by Robert Kabushenga which featured XENO’s CEO and Founder, Aéko Ongodia, as he traversed the principles of investment through colorful analogies. We thought they were so crucial for investment; we cherry picked our favorite for your learning.
1. The motives of investing lie in our being prepared for the future
“Our parents took us to school to learn, so that we would be able to function as adults, earn some money and take care of them.
Robert - “For some of us we were a retirement plan for our parents.”
“Some parents might have even chipped in to say “once you’ve earned some money, don’t spend it all. Be sure to save, because there are things that will occur in the future, that you might need to take care of, with what you have earned today.”
As humans we attempt multiple investments throughout our lifetime. Aéko highlighted that at the center of investing is preparing of the future. For some, these elementary lessons were observed in how our parents invested in our education and how they encouraged wise saving and spending behavior, so one day we too could do the same.
2. “Don’t fall in love with the asset” - Invest for a Goal
“Often times, we get lost in the asset and the tools that we forget the big picture. It’s like getting lost in the trees and forgetting the forest.
People begin giving their investment instruments power...
Assets are just tools you use as a means to achieve an objective. They are not the end in itself.”
As investors, one of the biggest pitfalls is obsessing about assets and tools, used to go about investing. Aéko emphasized that more important than assets, is understanding how they are combined to achieve their intended objective. Goal-based investment promotes intentionality, so that investors construct portfolios based on whether their assets and the way they are combined will meet their ultimate objectives.
3. Investing sends money through time, to a point you will require it the most
“Imagine the financial system as a pyramid where each layer provides a function. The bottom layer provides a safe keeping function. These are bank accounts that keep our money safe till we need it.
The next layer is a payment infrastructure to help move money from one person to another for undertaking payments: essentially moving money through space.
The top layer is moving money through time; from time A to B. Time could be 5 years from now, when your child is going into university. You can move money through time in a bank account but is it the most optimal?”
While we all want a secure future, only a few of us plan and execute for it. Aéko points out how the investment sector is a vehicle in which to accumulate resources that help us respond to needs and goals in our horizon. However, as we see in the next point, not all vehicles are built the same, nor the drivers of those vehicles.
4. Investment strategies should consider constraints
“You’ve heard the advice: buy a piece of land, buy a house. Just because I’ve made money on land in Gayaza, does not mean that you too will make as much money, or if at all. Just because someone is successful, does not mean you can replicate the same sequence and achieve success. Some of these investments require significant supervised and often specialized advisory effort to be able to invest.”
It’s a habit that many people start investing through a juicy tip off. Aéko pointed out that this often leads to ignorance around the objectives and constraints of an investment. While some investors may ask about the projected return-value of the asset, they often forget to assess whether their individual input can drive the success of that investment. Investors looking for advice must seek out licensed fund managers who are able to fully assess their probability of achieving their desired goals.
5. Investment means taking risks for the sake of putting your money to work
“Investment means taking money sound asleep in your pocket and putting it to work. It’s like leaving the safety of your house to get on a boda. You negotiate traffic at the risk of an accident, all in the hopes of achieving a return.”
Becoming investment savvy requires a sober attitude that risk is part of the package. Naturally humans have different levels of risk tolerance, which is why approaching investment can be an uphill process of building trust, one person at a time. Aéko outlined why XENO as a regulated player in the investment sector makes investing a transparent process and is actively building investment literacy through its educational efforts and partnerships.
6. Investing is allocating money with an optimistic outlook
“Investing is something you do when you are optimistic about the future. Insurance is something you do when pessimistic about the future.”
Did you know there was a difference between Investment and Insurance? Aéko drew a fine line where people often get them mixed up. While both habitually allocate funds, investment promotes building the future in a positive view. Insurance, on the hand, anticipates that something will go wrong in the future and therefore plans for it.
7. Investment funds pool resources that can be deployed into the economy
“To take advantage of (Africa’s) natural resources you must organize capital and deploy it in an organized manner. When you have a situation where capital within a country is segmented; think for example about the land your father had and decided to split it up among his children and everyone is making their own micro decisions. This might not be sufficiently organized to deploy to projects where you will have the greatest multiplier effect.
If XENO succeeds by helping thousands of individuals, millions of companies organize their resources, we would have organized the resources of the nation, we would have organized the resources of the continent.”
Join Aéko Ongodia on the 21st March 2022 in Part 2 of his conversation on 360Mentor with Robert Kabushenga which will explore critical steps in going about investing.
You can listen to Aéko’s full 360Mentor interview with Robert Kabushenga by following this link here (https://twitter.com/i/spaces/1zqJVBbVkZZJB?s=20 ).
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