After we saw the poor performance of the T-bonds in a tap sale last week,

Moody's, a credit rating agency has downgraded Kenya's credit rating.

So what does this mean for Kenya and it's ability to meet it's financial obligations? Investors rely on rating agencies to examine the level of risk involved in lending money to a company or country.

Think of credit rating agencies as a body that keeps & updates the credit score(ability to repay debt) of corporations and governments.

Governments and corporations that are ranked lower have to pay an additional premium for the greater risk involved.

That's one of the reasons why U.S. treasuries have a return of about 5% while Kenyan bonds have a return of about 12%

It's more risker to lend to the government of Kenya that to lend to the U.S. government.

Taking a mortgage in Kenya ranks 1st in the 1,000 ways to kill your financial future.

While mortgages in most developed countries are regarded as good long term debt,

In Kenya, they are the exact opposite.

Here's why it makes no sense taking up a mortgage in Kenya Let's start with the basics:

Mortgages in the western world (let's use the U.S in this example) are highly encouraged and even regarded as good long term debt.

This is because the average mortgage is at 6% and the the benchmark asset (the S&P 500) has averaged a return of 9% per annum between 1957 - 2023

Hence it makes sense to go the mortgage route instead of paying 100% cash for your house.

It is cheap/affordable/good debt.

In 2023, Kenyans borrowed KES 2.3B daily on Fuliza.

Nowadays, debt has become so accessible with many digital lenders offering soft loans in just a few clicks.

Let's talk about Debt & debt management

A thread🧵 There are two kinds of debt

1. Good debt - Used to finance things that will increase in value over time

It may qualify to be called an investment

These include mortgages and student loans

90% of Kenyans save their money in the wrong saving avenues.

These include:

1. Banks' saving accounts
2. Banks fixed deposit accounts with low returns
3. Chamas that do merry go rounds
4. Mshwari Lock savings account

Instead of these, there is a better alternative👇 Where should you ideally save your money and what should you consider when choosing a saving avenue?

1. Security of your funds. You don't want to save your money in a place where there's a high likely hood of you losing your money.

2. Greater returns than inflation rate. The CBK has the normal inflation rate in Kenya at around 5%(plus or minus 2.5%)

Hence you want to save your money in an avenue where you can easily beat the inflation rate while exposing your money to very little risk.

Treasury bonds are a great asset for financial planning.

You can pay rent, earn a monthly income or settle any monthly expense from the returns of Treasury bonds.

Through bond laddering you can have a bond that pays passive income each and every month.

Here's the explanation: Treasury bonds is simply a financial asset where investors lend the government money for a promised rate of return on their capital.

Bonds have the following superior advantages:

1. Fixed and predictable returns

Once you buy a bond at a yield, say 15 per cent, the bond retains that return until it's maturity.

Meaning that you will get that 15% return per annum until the bond matures.

The life insurance penetration rate in Kenya is a worrying 1.3%

Many people consider life insurance a SCAM, a PRIVILIGE for the RICH or something that only OLD people should consider.

In this thread I answer the Most Frequently Asked Questions about Life Insurance

A Thread🧵 What is Life Insurance?

It is a contract between an insurance policy holder and an insurance company.

The insurer promises to pay a sum of money in exchange for a premium, upon the death of an insured persona or after a set period.

One of the biggest regrets that people have with their personal finances is:

"I have nothing to show for my 10-20 years of working despite earning a good income and even getting promoted a couple of times."

Why does this happen and why do so many people end up in this?👇👇 Let's start with why this regret happens:

1. Living paycheck to paycheck. Having a zero savings rate

2. Lifestyle creep. This is where an increase in income leads to a corresponding increase in lifestyle expenses

3. Black tax. Shouldering the burden of your family, relatives and friends

4. Lack of a long term financial plan.

5. Financial illiteracy.

6. Taking huge debts that overstretch your budget and take decades to settle.

Instead of saving money in your bank's saving account, save in a Money Market Fund

Instead of using fixed income funds for long term investing, invest directly in T-bonds via CBK

Instead of using an education policy to save for your kid's education, combine a term life + an investment product like a MMF

Instead of relying entirely on Individual Pension Plans to secure your retirement, create your own personal portfolio as a backup.

Explanations below👇 1. Save in a Money Market Fund. Ignore banks' savings and fixed deposit accounts.

Here are the benefits:

1. Earn higher interest rates on your savings above the inflation rate.

2. You can withdraw your money any time you want without penalties unlike in your fixed deposit account.

3. Your money is still secure as MMFs invest in low risk assets meaning you can hardly lose your money

CBK floats bonds every month. That means there are a lot of bonds to invest in.

How do you decide which bond to invest in?

Here are some of the factors that you should consider:

1/ Type of bond.

Infrastructure bonds are tax free and very lucrative to investors. 2/ Type of sale.

You have more control over the price in a primary issuance than in a tap sale or a reopened bond where you may find yourself paying a discount price or a premium price.

3/ Maturity of the bond

This determines when you will get your principal back in case you hold your bond to maturity

Thread🧵

Life insurance is one of the key components of wealth protection.

It's also very key in wealth succession/estate planning.

Payouts are tax free & cannot be contested in court.

In this Thread we discuss the role of Life Insurance in wealth protection Let's start with the basics:

What if life Insurance?

It is a contract between an insurance policy holder and an insurance company,

Where the insurer promises to pay a sum of money in exchange for a premium, upon the death of an insured person or after a set period.

Money Market Funds vs T-bills

A question that is often asked by many:

"Since MMFs mainly invest in T-bills, why can't I invest directly in T-bills and get the *full gross return* before management fee is deducted?"

Here is how MMFs compare to T-bills👇👇 Before we even talk about returns, a MMF has an edge over T-bills because of the following reasons:

1. Liquidity

With a MMF, you can access your money within 2 days of asking.

For T-bills you have to wait until the maturity of the paper since T-bills aren't traded in the secondary market like T-bonds.

Hence a MMF is more liquid than T-bills

Although T-bills have shorter tenors of 91 days to 365 days hence still score high on the liquidity rankings.

Imagine this

You're moving in to Kileleshwa & you have the option to buy a 3 bedroom apartment at KES 15M or pay a monthly rent of KES 150K.

Hint: Investing the 15M in an IFB that fetches a return of 13% would earn you 1.95M per annum or 162.5K per month

Lets evaluate this👇 Last week I did a tweet on the never ending debate about "Renting vs Home Ownership"

While most people talk crap about renting and praise Home Ownership, there are pros and cons in both.

In this thread I will try to highlight the pros and cons of each and then leave you to have the final say.

With a portfolio of KES 20M, you can withdraw KES 1.2M every year & probably never run out of money

This only accounts for 6% of your portfolio

With an average annual return of at least 6% you can survive on KES 100K a month

This is how to think about retirement planning👇👇 Regardless of when you want to retire, this is what your entire retirement portfolio should entail:

1. A personal portfolio. A diverse set of income producing assets like MMFs, bonds, stocks, real estate

2. A pension plan. This should act like a back up to your personal portfolio.

You get to utilize the expertise of fund managers to grow your retirement kitty.

3. Medical Insurance. Medical bills can quickly force your to dispose your long term assets.

Treasury bonds were the best performing Asset class in Kenya in 2023.

Here are answers to Frequently Asked Questions about Treasury bonds:

1/ What is the difference btn Treasury bills and Treasury bonds? A T-bill is a short-term borrowing instrument issued by the the CBK to raise money on short term basis – for a period of up to 1 year.

T-bills are issued in maturities of 91, 182 & 364 days.

T-bills are sold at a discounted price to reflect investors' return & redeemed at face value.

Answering the most frequently asked questions about Money Market Funds.

1. Can I lose my money in a Money Market Fund?

No.

Money Market Funds are managed by a Fund Manager, overseen by a trustee, a custodian and regulated by the Capital Markets Authority. The Fund Manager ensures funds from investors are invested in accordance with the fund’s investment objective.

A Trustee ensures that investors’ interests are protected at all times.

A custodian (usually a bank) holds in safe custody the funds of a unit trust.

As a young person who thinks a lot about personal finance and investing,

I've come to realize that much advice about investing isn't suitable for young people.

Here's how young people should approach investing.👇👇 1. The biggest holding in your portfolio is you - income that your career will generate over your life time.

Your skills and knowledge will do more for you than any amount of investment returns over your lifetime.

Invest in your self.

Assuming you can manage to save 20K - 50K a month for the next 5 years,

You can easily create a portfolio that generates a passive income of 10K - 30K per month.

Here's a simple portfolio that you can create👇👇 A portfolio is a collection of assets owned by one person or an entity.

Simply put, a portfolio represents all the investments that you own.

These assets or investments may include stocks, bonds, real estate, mutual funds, etc.

Despite the high yields from government bonds,

Investors are worried that the government may default.

Kenya has even been referred to as the Next Ghana.

In this thread, we cover what it means for a government to default, causes, effects, and whether Kenya is likely to default A default refers to a situation where a sovereign state is unable or is unwilling to fulfill its debt obligations.

When a nation defaults, it has not made the necessary loan or bond payments.

Default often forces a nation to seek assistance from IMF or World Bank.

There are three funds that every investor should have:

1/ An Emergency Fund
2/ A Sinking Fund
3/ A Run Away Fund

Here's what they are and how to create them👇👇 1/ An Emergency fund.

What is it?

This is a set amount of money that covers your daily expenses for a certain period of time.

It should cover your daily *normal* expenses for a period of 3-6 months.

There have been fears by retail investors that the Government of Kenya may default on its debt.

How can retail investors de risk their bond portfolios?

And should they really be worried?

A small thread🧵👇 First, the probability of GoK defaulting on it's debt is very low.

And the consequences of this would be dire in the near future.

Hence GoK would do anything possible to avoid a default.

THREAD🧵

So you just landed a new, well paying job?

Here’s how to save and invest your money in the right way👇👇 1/ Create a Budget.

If you do not tell your money where to go, you will always wonder where it went.

Separate your needs from your wants.

If you do not budget your money, it will never be enough to cater for your needs.