Financial Tip

Grow your value!

An investment asset or item that is purchased with the hope that it will generate income or appreciate in the future i.e. an investment is the purchase of goods that are not consumed today but are used in the future to create wealth or appreciate and can be sold at a higher price. 

Investing is using your money to buy financial assets such as land, real estate, business, retail shop/wholesale, shares or bonds and investing in income-earning enterprises to increase the assets future value.

Here we share some tips on investments and what you can do to get started today. 

Investment scope:

  • Putting your savings to work for your money to grow. This means that you make your money available to be put into some ventures and thereby benefit from the profits from those ventures.
  • Spending your money in ways that increase your earning ability in future.
  • Foregoing today’s consumption for an activity that will bring you more income in future
  • Investment can be short term i.e. brings returns (income) soon, medium-term investments that take some years before one can earn from them and long term investments that require a lot of money and take longer to bring in returns.  
  • The advantage of long-term investments is that over time, they increase in value. This means if you have the right investment, your wealth would increase in the future! The opposite is also true, especially if you make the wrong investment.

Different Forms Of Investments Available To You

There are different investment products to choose from and you need to educate yourself fully about them to enable you to determine and choose the one that best suits your situation and financial need.

Available investment products to choose from including the following

  1. Business: These include business set up for production, processing and exportation. Some people have set up both big and small outlets for the sale of goods and services. These can include retail and wholesale shops and other companies.
  2. Farming; Uganda is an Agricultural economy and most investments are carried out in this sector. Opportunities are available for investment form production, processing and exportation.
  3. Real Estate; Investment in property or real estate or land is good business especially when the market is right. There are many real estate companies in Uganda involved in the purchase and sale of land and other assets e.g. houses.
  4. Fixed Deposit or Certificate of Deposit: When you invest in a fixed deposit, you lend your money to the financial institution and benefit from the interest that accrues on the money. You can invest in a fixed deposit by paying money into an account set up for you by the relevant financial institution.
  5. Stocks/Shares: A share is an instrument which represents partial ownership of a company. when you invest in shares, you become a shareholder in the company and are entitled to dividends from the profits of the company.
  6. Bonds; A bond is an instrument used by the issuer to borrow money from the holder with the obligation to repay the principal and interest at future dates. When you invest in bonds, you lend your money to the issuer of the bond who may be a company or government. Bonds can be bought and sold from a regulated stock exchange such as the Uganda Securities Exchange (USE).
  7. Government securities (treasury bills and bonds) are agreements where an individual or business lends money to the government for a specified period (between 3 months and 10 years) after which they will get their initial money back plus interest. Government securities come with almost no risk of default and the interest is fixed.
  8. Collective Investment Schemes (CISs) are private financial arrangements regulated by the government through the Capital Markets Authority (CMA), where many small investors pool resources. Professional licensed and certified fund managers invest these resources in various ways such as shares, bonds, property, fixed deposit accounts and treasury bills with the main goal of generating high returns while minimizing risk through investing in different financial opportunities.

Why You Should Invest?

When you invest, you give a few of your earnings to someone to do business with and who would then pay you back regularly or at an agreed time with additional money earned from what he used the money for. 

Your money which would have sat idle now works for you and brings you more money and that is a good reason to invest. 

There are many reasons why people invest. Here are some key reasons why you should consider investing your money

  • You generate additional resources to protect your future well being
  • You achieve your financial goals such as buying a house or starting a business
  • You accumulate resources to pay for the education of your children
  • You accumulate resources to care for your children, ageing parents and other relatives.
  • You secure your retirement income
  • You contribute to the growth of our national economy as your investment is deployed in the productive sector of the economy
  • You preserve the value of your money against inflation
  • Creation of employment opportunities
  • Increase the ability to earn more income

How And Where You Can Invest?

BANK OF AFRICA In Uganda has specialized unit in managing the investment. Visit the custodial page to see a variety of investment avenues to choose and tailor-made advice.

NB: Always seek professional advice before you invest.

How to choose the right Investment?

Various factors can inform your choice of investment products. Weigh these factors carefully and make the decision. The factors include:

  • Your objective for investing
  • Your current Income
  • Your age
  • Your risk tolerance level

In choosing your investment, there are seven questions to ask before you make an investment decision.  Once you know your asset mix, you can choose specific investments. Before you choose an investment, understand how it works and the risks involved.

Ask yourself:

  • How does the investment work? Do you understand the investment well enough to explain it to someone else?
  • What are your goals? Are you looking for safety, income or growth from this investment? Or both growth and income?
  • What are the risks of this investment? Are you comfortable taking these risks?
  • How much do you expect to earn on this investment? Is this realistic?
  • How long do you plan to invest? Is this a short-, medium- or long-term investment?
  • What are the costs to buy, hold and sell the investment? And will you pay taxes on the money you earn?
  • What other investments do you have already? How does this investment fit with your other investments? How will it change your asset mix

There are many investment options, which however may not give you a return as you would wish. The following are some of the investments you could put your money into depending on your location.

  • Investing in assets that appreciate in value e.g. land
  • Investing in projects/ventures for speculation-Shares
  • Investing in assets that start earning immediately like starting a shop or hotel
  • Investing in assets that offer services to other people e.g. taxi, pick up
  • Putting money in a joint business e.g. setting up a company or cooperative. You should work with people you trust
  • Investing in more than one project, like having a farm and a shop can spread risks

Before you make a decision to invest and what to invest in, consult an investment advisor or stockbroker who is in the best position to help you define clearly your investment objectives and determine which investments are best suited for you

Risks in Investment

Every investment comes with a risk. There is a risk of losing money when your investments lose value, are stolen, mismanaged, destroyed or damaged. If you are investing through a bank or you use an investment advisor, find out from them how to best minimize risk of loss.  Some investments such as government securities, bonds and treasury bills usually have very little risks. Invest according to how much risk you are willing to take. Riskier investments may earn you higher profits, if they are successful – but there is a greater chance that you can lose some or all of your money.

You will be a successful investor if you always review the information you are given, ask questions and make sure you understand and are comfortable with the way your investment is being managed.

  • Keep in touch with the financial institution or investment firm so that you can monitor your investments
  • Invest regularly
  • Keep your investment receipt or certificate in a safe place

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