Is investing in the stock market the best bet for retirement?

Friday February 28 2020

When we think of retirement, most of us think of the retirement benefit that comes from your employers. PHOTO | FILE


There are folk who speak things that hit home and keep you up at night chewing on their words and staring into the continuum void that envelope these hot Nairobi nights. It’s not what they say that turns their statements into profundity, really, but how they articulate it to your situation.

Case in point: I was listening to one of Oprah Winfrey’s Super Soul podcasts and her guest said, “If people got what they prayed for they would be in deep grief – there is more power in unanswered prayers than in answered prayers.”

AA Gill, the late columnist for the UK’s Sunday Times once quipped, “In your 30s, when people ask, you should be able to say what you are rather than what you hope to be.” And Eliud Kipchoge, “Only the disciplined ones are free in life.”

A few harvests ago, a reader popped up in my email sharing her eye-opening opinion on a story I’d written online about the stock market. She works in investment banking, her name is Lilian. Somewhere in her tail end of her lengthy email, Lilian said, “The thing is this, Bett, stocks always outperform other investments. Shares don’t promise a fixed rate... companies have to give the shareholder a reason to buy more and more and keep their shares.

“This why they launch new products, enter new markets, merge with bigger players, invest in real estate holdings such as malls and apartment blocks. I can’t think of any investment that gives these returns, not even land. It’s also why Warren Buffet became rich in his old age: That is how long it took for the shares to appreciate.”

Lilian’s words got me thinking about the versatility of the stock market as an investment product, especially as an option for retirement.


Hear me out. When we think of retirement, most of us think of the retirement benefit that comes from your employers – the 50-50 contributions they make with you every month; the one that is deducted directly from your payslip; the one that is only accessible at retirement or when you die, whichever comes first.

For those who are self-employed or don’t have the privilege to have a job with this retirement benefit, you have likely set up your own insurance policy with an insurance company, and are making your contributions there.

What most of us don’t consider is that the properties that the stock market offer another option for retirement. The stock market is not a short-term investment vehicle – it’s foolish to buy stocks this year, and liquidate your portfolio in less than five years. You’ll lose out if you make this rookie mistake. Remember that what makes the stock market attractive is capital appreciation, not dividend income – you make your money as the unit value of a stock appreciates over time, not from the dividend income you receive annually.

Remember also that the stock market is one of the more volatile options in the financial market – share prices yoyo because of political tensions, who runs Nairobi County, boardroom turfs, the death of a director, global dollar rates, locust invasions...Just about any market-wide factor is likely to have a hit on stock prices.

The longer you let your investment sit in the stock market, the more likely it is to ride the unpredictable highs and lows of this volatility, and make you a handsome return from capital appreciation.

The retirement age in Kenya is 55 to 60 years. You could retire earlier or later, it’s up to you. I’m 35 right now. If I commit to investing at least Sh17, 000 in the stock market every month for the next five years, I’ll have invested Sh1million by the time I am 40, Inshallah. I’ll let this investment sit tight for 15 years, until I retire at 55.

An analysis of select stocks from the NSE (Nairobi Securities Exchange) shows that the capital gain averages 16 per cent per year.

By the time I’m 55, my Sh1million will be have grown to be worth Sh3.25 million, give or take. I’ll liquidate my entire portfolio at retirement and use this Sh3.25 million to purchase an insurance product called an annuity. An annuity takes your lump sum and pays you a consistent income every month until the day you die. It’s as though your younger – and smarter – self is paying you a salary in your old age. How cool is that for foresight?

Bett Kinyatti is a certified accountant with ACCA and a former financial auditor.