By Denis Jjuuko
Many people in countries like Uganda have no pension or any form of retirement savings. Like we saw during the pandemic, most people are a missed payment away from poverty. It probably explains why some people especially in public service are said to be swearing affidavits to lower their age. The thought of retirement sends a chill down their spine.
Some have trauma from their past experiences as children of people who retired to poverty in the 1990s following massive retrenchment. It could also be one of the reasons for the rampant corruption in Uganda today.
So, it is always refreshing when a debate on where to invest comes up. Like it has been over the last few weeks on the social media platform X. The issue of debate was whether people should invest in real estate, treasury bonds, bills and unit trusts. Some said real estate (rentals) and others were in for treasury bonds, bills and unit trusts. Others said let people do business.
This is a good debate that gives people options of where to save and invest and avoid the YOLO (you leave only once) mantra that some young people subscribe to. YOLO is a one-way ticket to poverty during retirement.
Uganda has one of the world’s youngest populations so to tell them to invest for retirement sometimes looks and sounds extreme. If somebody is 25 years old, they look at retirement at age 60 which is 35 years away as something that can be handled at a future date.
The challenge is that if you start saving and investing for retirement at age 45 or 50, you will have to put aside lots of money every month. If you start at 25, you can put small amounts aside which grow into something huge over time. It is what some people call the snowball effect.
Long term treasury bonds (10-20 years) return an average of 14 percent per a year while bills and unit trusts return around 10 percent annually in net income. Real estate may also be around 8-10 percent annually but in gross income. These returns are sometimes discouraging.
The proponents of business say the returns are so low in real estate and bonds. Those who propose bonds and unit trusts argue that it is net income and therefore very few businesses make such net profitability. The real estate advocates talk about appreciation. All those arguments are probably correct.
The issue is that many people usually have more money on them than they need that they aren’t investing anywhere. And if that money is available and accessible, it is easy to use it on stuff that are not that critical.
I have been to places where strangers have bought me drinks just because their favourite team in the English premier league has won a game or the one, they hate has been defeated. There are even people who dress up nicely, go to a bar, sit down and drinks are sent their way by strangers.
Although that may make life interesting and worth living, it isn’t because the majority doing so have a lot. Many have no savings and sometimes are the ones claiming that they have nothing to save or that 10% interest annually on Shs1m is so little. For many people, Shs1m is also little to start a meaningful business. What do some people do? Eat it.
If you are a young person and your dream is to invest in real estate, one of the easiest pathways is through bonds, bills and unit trusts. Let us make some assumptions here.
Suppose you need Shs10m to invest in a plot of land where you will build rentals, it may take you a long term to have that money as a lump sum. But if you invest Shs100,000 every month and that money grows at about 10% annually, you will hit the target in 6.5 years. You would actually have Shs482,000 more. If you wait to have a lumpsum of Shs10m, you may take forever to get it. Same model can be used to raise business capital.
Most Ugandans who invest in real estate do so over a long time but in a way that sometimes doesn’t make them money. They start building with little money and spend years building incrementally. Bonds, bills and unit trusts could still be an alternative using the same model mentioned above.
Instead of starting construction with little money, they could invest it over time and withdraw it when it is significant enough to complete the project. That way, construction doesn’t become a lifetime drag.
The writer is a communication and visibility consultant. djjuuko@gmail.com
