Graduating from the Safety Zone
In Part 1 of The Art of Investing, we explored low-risk investments—the financial equivalent of driving a Toyota Probox at 40 km/h. Reliable? Yes. Exciting? Not exactly.
Now it is time to venture into the middle ground: moderately risky investments. These are investments that offer higher potential returns than fixed deposits and Treasury Bills, but they also come with a bit more uncertainty.
Think of them as upgrading from the Probox to a Subaru. Still manageable, but now there’s some horsepower under the bonnet.
For ordinary Kenyans looking to grow wealth faster without jumping into highly speculative ventures, moderately risky investments can strike the perfect balance.
What Are Moderately Risky Investments?
Moderately risky investments are assets that:
- Have the potential to generate higher returns than low-risk investments.
- May fluctuate in value over time.
- Carry some possibility of losing money.
- Are generally suitable for long-term investors.
Unlike low-risk investments that prioritize capital preservation, moderately risky investments focus on achieving faster growth while keeping risk at a manageable level.
1. Stocks Listed on the Nairobi Securities Exchange (NSE)
When you buy a stock, you become a partial owner of a company.
If the company performs well, your shares may increase in value and you may receive dividends. If the company struggles, your investment could decline.
This risk-reward relationship is what places stocks firmly in the moderately risky category.
However, caution is heavily encouraged before jumping into stocks. The current market price of a stock is not really indicative of its financial position. For that, you have to check factors such as the company’s Return on Investment (ROI), the Earnings Per Share (EPS) and the Dividend Per Share (DPS).
Popular NSE Stocks for Kenyan Investors
Examples include:
- Safaricom PLC
- Equity Group Holdings
- KCB Group
- Co-operative Bank
- East African Breweries Limited (EABL)
- BAT Kenya
These companies are generally considered more established than smaller listed firms, although no stock is completely risk-free.
How Stock Trading Works in Kenya
Stock prices move based on supply and demand.
When investors believe a company will perform well, more people buy its shares and the price tends to rise. When confidence falls, prices may decline.
Investors can make money through:
- Capital gains (selling shares at a higher price than the purchase price).
- Dividend payments from profitable companies.
How to Open a CDS Account
To trade on the NSE, you need a Central Depository System (CDS) Account.
The process is straightforward:
- Choose a licensed stockbroker or investment bank.
- Complete the CDS account opening forms.
- Provide identification documents.
- Link your bank account.
- Fund your investment account and begin trading.
Many brokers now offer online and mobile platforms, making investing far easier than it was before.
2. Treasury Bonds – The Older, Wealthier Cousin of Treasury Bills
Treasury Bonds are issued by the Government of Kenya and are among the most popular investments for long-term investors.
Bonds pay more than Treasury Bills because Treasury Bills usually mature within one year.
Treasury Bonds, however, can last several years.
Because investors commit their money for longer periods, bonds generally offer higher returns.
Benefits of Treasury Bonds
- Attractive Interest Income
2. Many bonds provide regular interest payments known as coupons.
3 .Government Backing
4. The Government of Kenya guarantees repayment, making bonds relatively secure.
5. Long-Term Wealth Building
They are ideal for goals such as:
- Home ownership
- Education funds
- Retirement planning
The main risk is that bond prices can fluctuate if interest rates change.
3. Corporate Bonds – Higher Returns, Higher Responsibility
Corporate bonds are issued by companies instead of governments.
Examples historically include bonds issued by banks, infrastructure firms and large corporations.
Why Corporate Bonds Are Riskier Than Government Bonds
The government has taxation powers and generally possesses a stronger ability to meet its obligations.
Companies do not.
As a result, investors demand higher interest rates to compensate for the additional risk.
Advantages of Corporate Bonds
- Higher interest rates than government bonds.
- Predictable income streams.
- Potential portfolio diversification.
The key risk is that the issuing company may experience financial difficulties.
4. Real Estate Investment Trusts (REITs)
Real Estate Without Becoming a Landlord
Not everyone wants to spend weekends chasing tenants or arguing about unpaid water bills.
REITs allow investors to participate in real estate without directly buying property.
A REIT pools funds from multiple investors and invests in income-generating real estate.
Investors earn returns from rental income and property appreciation.
Why REITs Are Moderately Risky
Property markets can rise and fall.
Occupancy rates may change.
Rental income may fluctuate.
However, REITs generally provide more stability than individual stock investments.
5. Unit Trust Funds and Balanced Funds
Unit trusts pool money from many investors and are managed by professional fund managers.
Why Young Investors Love Them
You do not need to be a finance expert to make an investment here.
Professional managers handle:
- Stock selection
- Bond allocation
- Portfolio balancing
Balanced funds typically invest in a mixture of:
- Shares
- Bonds
- Money market instruments
This diversification reduces risk compared to investing in a single asset.
Building a Smart Moderately Risky Portfolio
Instead of putting all your eggs in one basket—or one investment—you can diversify.
A sample investment portfolio could include:
- 40% Treasury Bonds
- 25% NSE Stocks
- 15% REITs
- 10% Corporate Bonds
- 10% Unit Trust Funds
Diversification helps reduce risk while maintaining growth potential.
Final Thoughts: Risk Is Not the Enemy
Many people avoid investing because they fear risk.
The truth is that risk, when properly understood and managed, is often the price of growth.
Moderately risky investments offer a practical path between extreme caution and reckless speculation.
For Kenyan investors, opportunities exist through the NSE, Treasury Bonds, Corporate Bonds, REITs, Unit Trusts and Saccos.
The goal is not to eliminate risk entirely.
The goal is to ensure that every risk you take has a reasonable chance of rewarding your patience.
After all, wealth rarely grows at the speed of a WhatsApp forward. It usually grows through consistent investing, sensible decisions and a little bit of courage.
Disclaimer
This article is for educational purposes only and should not be considered financial advice. Investors should conduct their own research and, where necessary, consult licensed financial professionals before making investment decisions.
