Here is a simple approach that works
Start now-don’t wait until tomorrow to start saving or investing for retirement, start as early as you can, I repeat the earlier the better. When you are young you can take more risk and hence increasing your chances of retiring in comfort.
Know thy self-How much you should be saving for retirement today depends on how much you are spending today. If you need KES100, 000 to go through a month today you should make sure you save an amount that will be equivalent to KES100, 000 tomorrow because one Shilling today is not the same Shilling tomorrow if one factor’s in things like inflation.
Build a diversified portfolio with good income-By this I mean invest in blue chips which pay good dividends. Avoid penny stocks or companies in fast changing industries like technology, when the last time did you see someone with a Motorola phone? One can also invest in high yielding real estate to reduce his/her exposure to equities.
Use the Magic of Compounding-Take for example smart investor A invests KES1mn in stock A which pays a dividend of KES1 per share per annum bringing its dividend yield to 10% his/her pretax dividend will come to around KES100K per annum. Now assume that Company A is in a fast growing sector and the company is able to grow its dividends by 10% every year for the next 20 years. What would investor A be receiving in 20 years in terms of dividends without adding a single penny to his initial investment? In 20 years time Stock A's dividend would have ballooned to KES3 per share if it grows at 10% per annum effectively netting investor A KES300,000 in terms of dividends per annum. Comfortable!
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