MANY a wise investor knows and appreciates the value of income generated from sources other than salaries or wages.Â
These individuals understand that the ordinary workplace can be a trap in which a person can spend a lifetime without being the wiser or richer. Itâ€™s pretty much like a dog chasing itâ€™s own tail â€” futile and energy consuming. Some people think investing is for the rich or those who can afford to spare the extra buck. But, like a famous investor advised: donâ€™t save what is left after spending, rather spend what is left after saving. To the ordinary Zimbabwean, this is easier said than done.
Letâ€™s take a look at what a regular month looks like for a Zimbabwean: On payday, salary is received and debts are immediately paid off. If we conservatively assume that a total of US$70 is spent on household groceries, it means that for most employees, half the salary is gone. Factor in rent, domestic workersâ€™ wages, transport fares, and an occasional treat and you end up with an employee who is always in the red and needs to borrow again to cover his position. This general cycle continues for the better part of an average personâ€™s working life.
Nearly everyone thinks that more money will solve their financial woes. Many people envision a better life if only their employers would realise how valuable they are to the company and accordingly give them a hefty salary increase. Two problems associated with this kind of thinking are that either the day that their bosses fully appreciate them will never come, thus they will always wait in vain for that increment. Or, that their salary is increased, and together with the perks that come with the increase, the government elevates them to a higher tax bracket. So the more they earn, the more they owe the government.
Either way, at the end of the month they find themselves with little, if any, improvement in their financial situation.
An apparent solution is not to rely on salary as the only source of income.Â Investments in the stock market are more rewarding than people tend to think. Unfortunately, memories of eroded savings in investment accounts are still vivid in most Zimbabweansâ€™ minds. For the few that have money left over after all monthly obligations have been met; the last place they want their foreign currency to be is in the stock market. But donâ€™t all great returns involve an equally big risk?
The ZSE market cap has soared from a low of US$1,2 billion on the March 24 to a standard US$3,5 billion over the last month or two. Old Mutual, for instance, has gained a staggering 315,4% since the stock market started trading in US dollars. If someone had invested, say, US$1 500 in Old Mutual the day the market opened, he would be worth US$6 230 in that investment. Imagine that.Â But, had the counter moved downwards, as did Redstar which lost 88% the same investment would be worth US$180. Risk and reward are positively correlated in the market economy, the higher the risk the higher the potential reward.
Sadly, the greater part of Zimbabweâ€™s formally and informally employed earn way below US$1 500. Not only are current salaries insufficient to cover the daily city demands, they are also a far cry from the minimum US$5 000 that is requested by most fund managers to invest in stocks. So how are Zimbabweans supposed to be financially wealthy and benefit from more than one source of income? The answer lies in the individualâ€™s priorities. Investment requires sacrifice. It involves foregoing present gain in anticipation of future profits; and it takes time.Â Real wealth generated on the stock market does not come overnight, or over a few months for that matter. It takes years. It provides a second earning and offers a potentially stable financial future; taking risk into account.
For those who feel the US$5 000 benchmark is too high, there are options for them in the form of unit trust funds. These cater for small investors. The funds are pooled together and invested in assets which some investors would not afford as individuals. The key is not to despise humble beginnings.
Zimbabwe is still in dire need of investments and without these the economy cannot recover. It is now the time for people to shift their focus from spending all their money on foodstuffs to investing in preparation for the future. But until a balance can be struck between present needs and prospective future gains; the ordinary Zimbabwean will continue to be trapped in the workplace.
BY THANDO KHOZA