Investment: Why purpose beats timing the market

The question of when to enter the market is among the many frustrations that investors face when making decisions.

Can one really time the market? Or is it more important to stay invested for the long haul? Financial experts urge investors to move beyond the obsession with time and focus more on purpose, not prediction.

Purpose over prediction

Diana Muriuki, CEO at Institute of Certified Investment and Financial Analysts, says that despite all odds, time is an important investment factor.

"When you think about timing, is it about timing the market or time in the market? That's a very important consideration before you begin investing because we are looking at a long-term perspective," she says

Ms Muriuki says that while many investors are tempted to predict the highs and lows of market fluctuations, when it comes to investing, it is less about catching the perfect moment and more about consistency and intentionality.

"There must be a motivation, a reason why you are investing. That is more important than the timing. And the best time to invest is now. There are so many investment opportunities right now where you can get as low as Sh100."

She argues that the obsession with timing usually masks a deeper insecurity. "When you start thinking about timing the market, you tend to make decisions that are more short-term," she says.

The long-held adage, "Be fearful when others are greedy, and greedy when others are fearful," may hold true, but Ms Muriuki cautions that even this approach needs grounding. "When will you know that it is the high of the highs?" She poses.

Equally critical, Ms Muriuki says, is understanding who is behind the investment. "Are they professionals from the head of investment department to the portfolio managers to the investment analysts? What is their background in terms of investing? That is very important."

Diversification and the power of staying invested 

Anthony Mwithiga, Managing Director Old Mutual Investment Group, talks on the macro perspective investors often overlook. "No one has ever timed the markets, but people always try," he says

"Another big question is, how long have you been in the market? Because at any time, whether you have Sh1,000 or Sh100, you are always encouraged to have a diversified investment portfolio."

The capital market expert explains that cycles are inherent in different asset classes.

"There will be cycles for investments which pay interest. There will be cycles for investments which pay dividends like shares. There are also cycles for investments which give rent as a source of income. The ‘when’ becomes irrelevant if you are holding a portion of the various investments."

Mr Mwithiga highlights last year’s performance of the equities market, which saw returns over 35 percent in local stocks. "It means that investors last year should have gone heavy on equities," he explains.

But more important than ‘when,’ Mr Mwithiga notes, is the ‘why.’

"Investors should seek financial freedom. If you are seeking financial freedom, your ‘why’ should be in you when you are asleep, when you are awake, when you are walking, when you are in the shower," he laughs.

His model of the investment journey includes gaining knowledge, becoming gainfully employed, saving, investing and building wealth and legacy. "In saving, we mainly focus on the security of our money and just a little return. Investments offer a higher return, but there is a risk to be managed."

The final piece of the puzzle, he says, is understanding the ‘where.’

"Think of anything investable globally. It can be done from Nairobi or even away from Kenya."

Mr Mwithiga uses a driving metaphor to explain risk tolerance across different life stages. 

"Your speed will change every three to five years, and that means that change of speed is a measure of your risk tolerance. If you are a younger person, you can invest in long-term facilities which can generate returns."

One of the investments favoured by young people is Non-fungible tokens (NFTs) and digital coins for their high returns. 

NFTs are digital certificates of ownership for something you can’t physically touch, such as a piece of art, music, a video, or even a tweet.

Anyone can see it, download it, or share it, but only one person can own the original version.

Ms Muriuki, however urges caution and due diligence. "We have seen some regulated products that are claiming to have over 50 percent of return. Just know there's a high risk aspect," she warns.

"If I invest in a high-return investment, yet I've started investing in January, before the end of December, I need to access that money so that I can pay part of my school fees. Is a high-return investment always good option? Of course it might not be," she adds.

Financial literacy and curriculum

The discussion turned to the importance of financial literacy at all levels, starting from education institutions. Gladys Kamau, representing Strathmore University Business School shares how the school is embedding financial training into the curriculum, not just for students, but for staff and executives too.

"Learning about investment starts from within. We have conversations about money among staff and conduct training programmes that are tailored for the staff. Students are also taught the basics of personal finance," she says

Ms Kamau says that business schools should lead by example in embedding investment education into formal and informal learning.

"Everybody needs to have a great level of knowledge around investment. When you think of the curriculum, it needs to be practical. Practical in what sense? It needs to address the different cycles in the investment area. For example, is it a recession period, is it inflationary?"

Practical tools like case studies and contextualised learning are necessary, she argues, to help learners make real-time decisions. The business school is also having a personal finance course in partnership with Moran Capital to provide both training and post-training mentorship.

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