Sometimes it’s easier to start working out with a gym buddy and investment clubs are similar. They allow you to save and invest money in a group.
Many of us would like to put money aside for saving and investing but the struggle is to remain committed and disciplined, investment clubs may be the perfect way to get you started. A couple of months ago I authored an article on why investment clubs in Uganda failed to expand and I got an opportunity to meet up with different clubs in the country.
It was then that I realized that most of the investment clubs didn't simply know where to invest their money. For most the ultimate goal is to buy huge pieces of land that have a lower price and then selling them at a future date in time when the prices shoot up.
Well, don't get me wrong there is nothing wrong with this investment approach but, there are other viable investment vehicles that can offer opportunities for clubs but are often overlooked. So, let's look at some of them.
Unit trusts. For a group that has not identified what it needs to invest in, a unit trust will give the club a number of benefits, including exposure to different types of assets and flexibility.
Clubs can access their money in a unit trust investment at any time. If your club decides to invest in a unit trust, it is important to do some research to make sure you choose a unit trust that matches your club’s goals and needs. There are several types of unit trusts available, which have different underlying investments and are appropriate for different time frames.
Real estate. Real estate investment is a popular investment option in Uganda and all over the world. It is an easy way to get passive income and stable cash flows.
The number of ways club members can engage in property business includes homemaking, flipping houses, owning and renting property. Members can pool their finances together and invest it in a particular property together, or purchasing land to develop for commercial, industrial, or residential, purposes.
If done right, real estate investing can be lucrative. It can help diversify your existing investment portfolio and be an additional income stream. Members should bear in mind that real estate as a whole is a relatively illiquid asset. Projects can take a while to execute and to pay off. So, whenever you think of real estate, you almost always have to think of it as a long-term investment.
Private equity. This is a form of investment that takes place outside the public stock market through which an investment club can gain an ownership stake in a private company.
Groups can invest capital in companies that are perceived to have growth potential and then work with these companies to expand or turn around the business. The private equity industry has the potential to grow businesses, support local jobs.
Fixed income securities. They are suitable for clubs that want steady returns. These offer regular or fixed, interest payments to investors and repayments of the principal when the security reaches maturity.
They are highly liquid, have low volatility, and are considered less risky compared to other securities such as equities and real estate. Treasury bills and bonds are the most common form of fixed-income securities, others include commercial paper and certificate of deposit.
Equities. Also known as stocks or shares, are considered as a growth investments as they can help grow the value of the original investment over the medium and long term. If you own shares, you may also receive income from dividends. When you invest in stocks, you're buying a share of ownership in a company. You become a shareholder. Investment clubs can take advantage of this by investing in the stock market.
Before investing, members must do their due diligence in the area they wish to invest in. They should also decide on the investment strategy, goal and aim to stick to that and they should avoid changing the strategy mid-way.
Author is an equity and fixed income analyst