Push Starting your Investment Portfolio.

For those of you who are old enough to have grown up in a era of manual transmission cars, you must be familiar with the concept of push starting a car.

Push starting is a method of starting your vehicle whereby it gains enough speed by being pushed and an experienced driver is able to jump start the car

For a regular personal car, a team of 2–3 people will be able to effectively push the vehicle to generate enough speed. Growing up, my grandfather had an Isuzu lorry that frequently needed push starting. I recall the joy and sigh of relief I would get when the lorry roared to life and we knew the job was complete and the driver could go about his merry way.

This week we will explore a similar concept but in the area of investments. The idea here is to get you thinking of which investment options can you push start and as always we will be doing some scenarios to see how you can go about putting to action this principle.

Push-Starting your Sacco Share Capital

Sacco share capital is the permanent member contribution toward the Sacco capital and forms part of Sacco equity. Shares cannot be withdrawn upon exiting the Sacco but can be transferred to another willing member. Due to this, it earns higher returns that regular contributions.

In most Saccos the annual return rate ranges from 14–20%. Let’s say our good friend Njoki decides she wants to push start this option by investing Ksh. 10K per month until the fund jump starts and can continue without any further input from her. For this scenario we will assume she gets an average return of 17% p.a., that the interest is computed off the balance as at 31st Dec of each year and that she reinvests the interest. The table below shows how her fund would perform.

From this table we can see that in the first year, Njoki has to raise the full 120K for that year from her own pocket. In year 2, the amount she needs to raise reduces to Ksh. 99,600 due to the interest earned in the first year. This processes repeats in subsequent years and by year 7 she just has to contribute Ksh. 1,068!! The column “Push Start Effect” shows us how much the fund is contributing to its own growth. After year 7 that fund will keep growing and you can see that by year 10 the interest earned, without any involvement from Njoki, has nearly doubled the contributions she was making.

If you are thinking 7 years is too long, and are keen to achieve the push start effect faster, you could dedicate to still contribute your share of 10K and reinvest the interest. The table below show how that would play out.

The fund is now able to generate interest equivalent or greater than 120K in the 5th year and thereafter. This means that Njoki would only have to invest for 4 years and then she could forget about it as it won’t need any more principal from her. The fund has gained enough speed, jump started itself and is roaring off into higher annual returns.

Key Takeaways:

• Push starting is a good way to create multiple streams of incomes
• This technique requires a significant initial principal investment but once the fund roars to life you can let it go
• This technique is suitable for investment options giving you returns in the range > 10% p.a. consistently. E.g. Treasury Bonds, Sacco Share capital, Commercial papers, Corporate bonds etc

Final note

Analyze your current investments with the angle of push starting and consider how much annual interest you will gain when the investment engine roars. Decide how much you are willing to invest monthly to push start the heck out of that investment. Remember, the more you invest in the initial years the faster you can get to the hurray moment. True wealth building starts when you have multiple streams that are roaring simultaneously.

Happy investing!

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