FINANCIAL STEWARDSHIP GOD AND YOUR MONEY
PRESENTED BYKIBBY KARIITHI
9TH FLOOR, FINANCE HOUSE, LOITA STREETP.O. BOX 41684, NAIROBI
TEL: 020 2210178FAX : 020 210500
EMAIL : [email protected]
What does the Bible say?There are twice as many verses in the Bible about
money than there are about faith and prayer combined.
Solomon was the wealthiest man who ever lived.In the book of proverbs, he mentions wealth and poverty as one of his major themes because of ‘the need to give prudence to the naïve.’
- Proverbs 1:4
We are lovers of money
There will be terrible times in the last days. People will be lovers of themselves, lovers of money.
- 2 Timothy 3:1
But we know that we must
…Seek first his kingdom and his righteousness and all these things will be given to you as well
- Mathew 6:33
In the beginning, God (Coram deo)
God created the universe both animate and inanimate, spiritual, physical, separate from himself but independent from him.
God is both transcendent (outside his creation) and immanent (present within it)
He is everywhere present and involved in history.As creator, God is the true owner of all that we
see. Man is but a steward. The earth is the Lords and everything in it, the
world and all who live in it. - Psalms 24:1
What have we done?
They exchanged the truth for a lie and served created things rather than the creator.
- Romans 1:25
Gods rescue plan
For God was pleased to have all his fullness dwell in him to reconcile to himself to all things, whether things on earth or things in heaven, by making peace through his blood shed on the cross.
- Colossians 1:15-20
Who is Jesus?
What does he ask of us? In the same way, any of you who does not
give up everything he has cannot be my disciple
- Luke 14:33 Turning to Christ has often led to losses of
jobs, or families or sometimes even to the loss of the believers life.
In order to fully understand Gods purposes for our finances, we must turn to the cross
C V in Isaiah 52:13 – 53:12
We belong to the Lord..But this is what the Lord says – He who created you
O Jacob, he who formed you, O Israel, Fear not for I have redeemed you. I have summoned you by name: You are mine.
Isaiah 43:1God has a purpose for our lives for we are
God’s workmanship, created in Christ Jesus to do good works, which God prepared in advance for us to do.
Purposes
1. Glorify God in all that we do - Ephesians 1:12
2. Obey God in response to his will and calling
3. To love God and others.- Mathew 22 37-39
4. To become a blessing to others
Who is in control?No one can serve two masters. Either he will hate the one and love the
other or he will be devoted to the one and despise the other. You cannot serve both God and money
- Mathew 6:24
Money has demonically usurped the role in modern society which the Holy Spirit is to have in the church.
Is money your treasure?Do not store up for yourselves on earth, where
moths and rust destroy, and where thieves break in and steal - Mathew 6:19
People who want to get rich fall into temptation and a trap and into many foolish and harmful desires that plunge men into ruin and destruction. For the love of money is a root of all kinds of evil. Some people eager for money, have wandered from the faith and pierced themselves with many griefs. - 1 Tim 6:9-11
Guard your heartAbove all else, guard your heart, for it is the
wellspring of life- Proverbs 4:23
I seek you with all my heart; do not let me stray from you commands
- Psalms 119:10The sacrifices of God are a broken spirit; a
broken and contrite heart, O God, you will not despise
- Psalms 51:17
What leads to prosperity?My son do not forget my teaching, but keep my
commands in your heart, for they will prolong your life many years and bring you prosperity
- Proverbs 3:1-2Blessed is the man who finds wisdom, the man
who gains understanding for she is more profitable than silver and yields better than gold. She is more precious than rubies; nothing you desire can compare with her. Long life is in her right hand; in her left hand are riches and honor
- Proverbs 3:15,16
What brings poverty?Dishonest money dwindles away, but he
who gathers little by little makes it grow.- Proverbs 13:11
Lazy hands make a man poor but diligent hands bring wealth
- Proverbs 10:4He who loves pleasure will become poor;
whoever loves wine and oils will never be rich.
- Proverbs 21:17
PHILOSOPHY OF THE BUCKETS
‘To become financially worry-free is not an impossible goal. Through a common sense approach, one can achieve this aspiration by working at it systematically’.
ASSET ALLOCATION
What is it? It is the process of deciding how to distribute investor’s wealth among different classes. Examples of Asset Classes are; Cash Stocks Bonds Real Estate
Each Individual Investor will have a plan that varies dependent on age, financial status, future plans, risks and needs. Ensure that the investment portfolio is suited to YOUR REQUIREMENTS and not those of the financial advisor/planner.
There are two primary types of vehicles for investments;
1. Fixed Income.Examples:
a) Money Market Fundb) Treasury Billc) Treasury Bonds
2. Growth.
ASSET ALLOCATION : KEY TO LONG TERM FINANCIAL SUCCESS
3 CHOICES FOR ASSET ALLOCATION
1. Security Bucket 2. Investment Bucket
a) Buy and hold
3. Dream Capital Bucket Asset allocation requires that you fill bucket I first, then bucket II, then bucket III
IF YOU ARE UNDER 40 YEARS.
If you are aggressive If you are conservative
Invest 30% Invest 40%
Invest 35% Invest 30%
GROWTH BUCKET
Invest 35% Invest 30%
SECURITY BUCKETT.B
BondsPension
BondsReal Estate
Insurance(s)Money markets
BUY & HOLD BUCKETShares
MOMENTUM BUCKET
3 CHOICES FOR ASSET ALLOCATION
IF YOU ARE BETWEEN 40 - 50 YEARS.
If you are aggressiveIf you are conservative
Invest 50% Invest 60%
Invest 25%Invest 20%
GROWTH BUCKET
Invest 25% Invest 20%
SECURITY BUCKETT.B
BondsPension
Insurance(s)Money markets
BUY & HOLD BUCKET
SharesBonds
Real Estate
MOMENTUM BUCKET
3 CHOICES FOR ASSET ALLOCATIONIF YOU ARE BETWEEN 40 - 50 YEARS.
IF YOU ARE OVER 50 YEARS.
If you are aggressive If you are conservative
Invest 65% Invest 70%
Invest 17.5% Invest 15%
GROWTH BUCKET
Invest 17.5%Invest 15%
SECURITY BUCKETT.B
BondsPension
Insurance(s)Money markets
BUY & HOLD BUCKETSharesBonds
Real Estate
MOMENTUM BUCKET
3 CHOICES FOR ASSET ALLOCATION
INVESTMENT THEORY & PRACTICE
CONSTRUCTING AN INVESTMENT PORTFOLIO
High Risk = High ReturnsLow Risk = Low Returns
Low Risk
High Risk
Stability of principal
Income
Income growth
Capital appreciation
CONSTRUCTING AN INVESTMENT PORTFOLIO
Before embarking on an investment plan, ensure that you the investor have
a) Insurance
b) Adequate Cash Reserve
To lower your risks in shares investment: Diversify into different sectors of the economy:
Agriculture;
•Industrial and allied;
•Financial;
•Commercial and Services.
CONSTRUCTING AN INVESTMENT PORTFOLIO
Expected Return 100% Investment in security withHighest E(R)
All portfolios on the line are efficient.Portfolios that are dominated lie below The Efficient Frontier.
100% investment in Minimum Variance Portfolio
Variance
Efficient Frontier for Risk Securities
STOCK MARKET INDICATORS
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PERFORMANCE REVIEW
MARKET INDICATOR/YEAR Sep-02
August 08
CHANGE
% CHANGE
NSE INDEX
1,004.70
4,648.78
3,644.08
362.70%
MARKET CAP EQUITIES
(KSHS BILLION) 83.86
1,081.86
998.00
1,190.08%
MARKET ACTIVITY
The total turnover in the equity market was Kshs. 15.2 billion in 2003, 22.3 billion in 2004, 36.52 billion for the year 2005, Kshs 94.95 billion for the year 2006, compared to Kshs 105.26 billion for 2007.
Turnover this year is expected to be above Kshs 200 billion, due to increased level of activity in the market occasioned by the listing of Safaricom.
THREE OVERALL SYSTEMS OF EVALUATIONTHREE OVERALL SYSTEMS OF EVALUATION
1. Guess and Gamblea) Hot Tipsb) Your brother-in-laws coachingc) Information from your broker that you fail to evaluate.
2. Bottom up
ECONOMY
SECTOR
COMPANY
HOW TO INVEST THROUGH BUY & HOLD BUCKET
3. Top Down.
COMPANY SECTOR
ECONOMY
HOW TO INVEST THROUGH BUY & HOLD BUCKET
THREE OVERALL SYSTEMS OF EVALUATIONTHREE OVERALL SYSTEMS OF EVALUATION
THE ECONOMY
KEY CHALLENGE!
Creating 8 million jobs for the youth in the next 5 years
The youth bulge – Kenya’s population age structure
0
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4
6
8
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0-4 5-9 10-14 15-19 20-24 25-29 30-34 35-39 40-44 45-49 50-54 55-59 60-64 65-69 70-74 75-79 80 +
% o
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At 2003
Globally, youth bulge exerts great pressure on societies
For exampleGermany:
Expulsion of parts of the population to create opportunities for the youth
Consequences - World War 2UK:
Imperialism as a coping mechanism
The youth bulge in Kenya is a time bomb…..
> 50% of convicts are aged 16 to 25 years67% of all those who are unemployed are between 15
and 30 Over 60% of new HIV infections are among the youth92% of those unemployed (especially youth) have no
vocational or professional skills trainingThe youth were the militia in the recent political crisisthe lack of opportunities to earn a DECENT and HONEST
living is what drives young people into crime and drugs, and into a general state of hopelessness and despair
….. but potentially also a great opportunity
Abundant and young labour force is a long-term economic growth driver
If 2 million unemployed young people could be given jobs, and produce at half the average industrial output per worker, they would add KShs 250 billion to GDP (or 20% of current GDP)
Quantifying the jobs deficit
Demographic summary, 20060-14 years of age are 41.9% of population, with
14.8 million children in school primary and secondary school pipeline to 2012
15-24 years of age are 22.5% of population, with 8 million in search of jobs over next five years
25-34 years of age are 13.4% of population, with 2.44 million who must have decent jobs now
Decent job creation challenge therefore is nearly 10 million decent jobs between now and 2012!
Key Education Indicators
National Primary Completion Rate was 86.5 percent in 2006
Transition Rate to Secondary Education was 60 percent in 2007
Transition Rate to University Education was 5.7 percent in 2003 and nearly 8 percent in 2007.
Enrolment SituationIn 2006, there were
7,705,335 children aged between 6-13 years i.e. primary school going age
3,665,751 children aged between 14-17 years i.e. secondary school going age
We therefore have 11.37 million aged between 6-17 yrs who should be in school
However, 691,000 of these children had never stepped into school and may grow up without any form of education.
Children Not Attending Schoola) Primary
• 1.62 million who come in and out despite free primary education
• Most affected regions are NEP 50.5% Coast 29.5% Rift Valley 25.1% Western 25.1% Nyanza 17.9%
b)Secondary3 million not in secondary
school but free secondary education should begin to mop up some of them
Most affected regions are as followsNEP 93.2%Coast 89.4%Western 87.4%Rift Valley 86.4%Eastern 84.9%
Children aged 6-17 not in schoolA. Primary SchoolsNationally the number
was 1,618,120 in 2006Nairobi 45,859Central 100,205Coast 212,694Eastern 195,099NEP 162,260Rift valley 495,703Western 198,374
B. Secondary SchoolsNationally the number
was 3,002,250 in 2006Nairobi 103,800Central 318,844Coast 307,080Eastern 538,682NEP 108,923Nyanza 452,009Rift Valley 780,029Western 433,735
Employment Picture 2006Province
Total 15yrs+ pop
Formal % formal
Informal % informal
Not employed formal & informal
Kenya 20,156,964 1,858,499 9.2 6,396,900 31.7 11,901,565
Nairobi 1,801,271 466,480 25.9 1,300,000 72.1 34,791
Central 2,754,217 264,914 9.6 1,079,000 39.2 1,410,303
Coast 1,820,737 230,500 12.6
789,700 43.4 800,537
Eastern 3,347,312 155,131 4.6
588,400 17.6 2,603,781
NEP 512,971 17,094 3.3
30,200 5.9 465,677
Nyanza 2,824,316 188,903 6.5 756,100 26.8 2,049,323
Rift Valley
4,779,287 417,557 8.7 1,210,600 25.3 3,151,130
Western
2,316,852 122,870 5.3 463,600 20.0 1,730,382
More AssumptionsAssume that two thirds of all those not employed
in the formal and informal sector are fully engaged in agriculture, livestock and fishing, i.e., about 8 million
Further assume of 20 million over 15 yrs, at least 10% are disabled enough not to be able to work, i.e., about 2 million
We will still have 2 million people that have no access to any form of employment at all, not even disguised unemployment on the farm or street.
The Challenge…1School pipeline ready to preparing to disgorge 14.9
million potential entrants to labour force beginning 2012;
8 million youth aged 15-24 already in market, with only 1.5 million in secondary school, colleges, and universities leaving 6.5 million on labour market;
2.44 million young adults 25-34 on market, looking for decent jobs with life prospects
Total, of over 10 million young people in labour, of whom 2 million cannot read and write therefore unemployable leaving 8 million employable youth looking for good jobs with prospects between 2008 and 2012.
The Challenge…2
Can Kenya deliver jobs to these young people?
What must be done to create the necessary formal jobs?
What are the consequences of success?What are the consequences of failure?
RISKS OF INVESTMENTSBusiness riskFinancial riskPurchasing power riskIn essence, investors have to be concerned with the
command that their invested money has over goods and services on a continuing basis.
Market riskChanges in the market price of securities caused by;An unexpected war, an election year, political activity,
illness/death of a president.The market risk in equity shares is much higher than it is
in bonds Interest rate riskChanges in interest rates which affect bond prices/values
TYPES OF STOCKS In picking stocks to include in a portfolio chose stocks that are affected
differently by, mainly economic factors in such a way that their returns move in opposite direction (they are as negatively correlated as possible).
Stocks can be categorized into; -Blue chip stocks; large companies with a long history of
profit growth, dividend payout and a reputation for quality management.Examples include; Unilever tea, nation media Group, Barclays, E A
Breweries -Income stocks; Stocks that pay higher-than-average dividends
over a sustained period. Examples include; BAT, Total, BOC, Eveready -Value stocks; A stock that is currently selling at a low price.Companies that have good earnings and growth but whose stock prices do not
reflect this are considered value companies.Examples include; Kenya Airways, Kenya Power -Defensive stock; Stocks that stay stable when the market
declines are issued by industries that naturally do well during recessions.Examples include; BAT, E .A. Breweries
TYPES OF STOCKS
Cyclical stocks: Stocks that move up or down with the business cycle.
Investors who do not mind buying and selling as the market fluctuates tend to like cyclical stocks.
Examples include; Scan group, Nation media, Standard Group, TPS East Africa
PORTFOLIO MANAGEMENTA portfolio is a group/collection of
assets/securities with different characteristics for purposes of diversification.
The major problem in managing portfolios is to establish an investment goal or objective and then decide how best to reach that goal with the securities available. This has been stated as an attempt by the investor to obtain the maximum return with minimum risk possible.
Basic principlesIt is the portfolio that mattersLarger expected portfolio returns come only with
larger portfolio riskThe risk associated with a security type depends on
when the investment will be liquidated. A person who plans to sell in one year will find equity
returns to be more risky than a person who plans to sell in ten years.
Diversification worksEach portfolio should be tailored to the particular
needs of its owner.Competition for abnormal returns is extensive Undervalued stocks are bought until the price rises
to a proper level and vice versa.
THE MANAGEMENT /INVESTMENT PROCESS
PlanningInvestor conditionsMarket conditionsInvestment policiesStrategic allocation
THE MANAGEMENT /INVESTMENT PROCESS
ImplementationTactical asset allocationSecurity selection
THE MANAGEMENT/INVESTMENT PROCESS
Monitoring Examine actual portfolio held to ascertain it is in
compliance with stated objectivesReview investment performance(returns) for the
aggregate portfolio and each asset classMake adjustments( revise the weights)
INVESTMENT STEPSa) Economic AnalysisAssessment of the overall economic
environment and a forecast of its near-term outlook is carried out based on the following macro-economic variables;
GDP growth rate, inflation rate, exchange rate and interest rate, taxation rate, etc.
??? stars
Cash cows
dogs
Market positioning
niche
mass
highlow Entry barriers:
technology; capital; regulation;geography
Market Dynamics
THE BCG MATRIX
INVESTMENT STEPSb) Industry Analysis Analyse the various forces that shape competition in the
industry;Determine the stage of growth for the industry;
Pioneering stage, expansion, stagnation. The idea is to identify sectors that stand to gain or lose
from the managers economic forecast. i.e identify the attractive and unattractive industries.
Select industries that are in the expansion stage of the growth cycle.
Don’t invest in industries in the pioneering stage unless one is prepared to accept a great deal of speculative risk, comparable to that assumed by the innovator/speculator.
c) Company Analysis
How does the Company make Money? Analyse Financial Statements;
-Profit and Loss -Balance Sheet-Cashflow Statement
An outline of company specific issues from these three statements is done and is mainly summarized by ratio analysis which can either be; Time series or cross-sectional analysis
Ratios give the investigator an indication of the direction in which the firm is moving and its financial position in comparison with other firms in the industry.
INVESTMENT STEPS
Continued…..Technical Factors.
-Using old technology. -Industry being overtaken by newer more efficient alternatives. -Investment partners pulling out.
Scarcity/Liquidity of Shares.
Are shares readily available.
2.What to invest in…. Investment Alternatives
Non Financial AssetsPropertyLandJewelry and
AntiquesLivestock
Financial AssetsShares/stockFixed deposits/savings
accountsUnit Trusts
3. Key Features of a good InvestmentRegulation and Governance
Accessibility (convenience)
Safety/security
Returns
Liquidity
•Retirement
•House
•Car
•Food, clothing
•Medical costs0-5 6-18
goals
19 – 25
•Immunization
•Pre-primary schooling
•Food, shelter and clothing
•Primary schooling
•Secondary schooling
•Medical costs
•Food, shelter and clothing
•University / tertiary
•Un/employment
•under employment
•Food, shelter clothing
•Medical Costs
•Car
•Insurance
•House
•Fees (education)
•Medical costs
•Un/employment
•under employment
•Investment
•Food, clothing
25-55 55+years
Opportunities
27% 8%....17%
56%...65%Life Cycle
•Home ownership•Education financing•Retirement Income•Emergencies funding
4. Planning Your Investments……Life Cycle
5. Background Data
No of People
1 Bank accounts 5,000,000+
2 Life Insurance Cover (no of people covered)
360,000
3 CDS accounts at stockbrokers 1,000,000*
4 Pension schemes (no of people covered) 400,000
5 No of people in employment 8,700,000
6 No of registered voters 14,000,000
7 Population aged under 35 years (77%) 27,642,000
6. Investment Approaches
Direct Approach
1. Technical Understanding
Required
2. Time & Resources
Required
3. Lump Sum Requirement
Required
― Indirect Approach: “Peace of Mind”
1. No Technical Knowledge
Required
2. No Time & Resources
Required
3. No Lump Sum Requirement
Required
4. Flexible
7.Indirect Approach…”Peace of Mind”
Unit trustsPersonal Pension Plans
8.What is a Unit Trust?
1. Pooled Fund Managed by Investment
Professionals
2. Regulated by Capital Markets Authority3. Advantages: Convenience
Risk Reduction (Investment & Operational) Professional investment management Liquidity Affordability Economies of scale
9. Unit Trust Structure
Unit TrustMembers
Trustees Fund ManagerCustodian
Requirements•2passport size photographs•Copy of National ID or Passport•Copy of PIN Certificate•Membership Form•Kshs5,000 (Personal cheques accepted)
Regulator and Governance•Approved by CMA•Trustees: KCB Trustee Services•Fund Manager: Zimele Asset Management•Custodian: Barclays Securities Services
11. Personal Pension Plan Structure
Pension Fund Members
Trustees Fund Manager Custodian
Requirements•2passport size photographs•Copy of National ID or Passport•Copy of PIN Certificate•Membership Form•No minimum amount•Personal cheques accepted
Regulator and Governance•Regulated by the Retirement Benefits Authority•Income tax exemption from Kenya Revenue Authority•Targets self-employed and persons whose employers do not operate a pension scheme
12. Tax Benefits of a Personal Pension PlanIndividual
AIndividual
BIndividual A's
Savings
Gross Salary 50,000
50,000
Less: NSSF Contribution
(400)
(400)
Pension Contribution
(10,000)
-
10,000
Taxable Salary 39,600
49,600
Less: Pay as you earn (6,974)
(9,974)
3,000
Personal Relief (1,168)
(1,168)
NHIF Contribution
(320)
(320)
Net Salary 31,138
38,138
Savings 13,000
13. Other Pension Benefits
1. Pension fund investment income not subject to tax
2. Pension benefits can be used as security for a loan to buy a house
3. Pension benefits not to be treated as part of the estate of a deceased contributor
4. No income tax on retirees’ monthly withdrawals
5. Lump sum tax free withdrawal of up to kshs.480,000 upon attaining retirement age
We Thank You for Your Time
Q & A
