What is the best investment?

I get asked this question a lot and while it looks simple it is actually a difficult question. My standard response is that it really depends on your circumstances and objectives. If the person insists on a specific answer then they become a subject of my probing questions as indicated below.

1. Tell me a bit about yourself?
This question allows me to get some context about the person. For instance is the person educated, employed, married, etc. I also try to gauge their income levels, networth, profession, and so forth. The idea is that money is deeply personal and some advice works for some people and not others. For example the advice you give to a married unemployed person is very different from what you tell an uneducated wealthy person. I also explore their interests, skills, passion, experience and try to uncover the real reason they are seeking my guidance. Most people don’t disclose the real reason they are reaching out. So I have to infer it from our conversation.

2. How much cash are you looking to invest?
This question helps me gauge which type of investments or asset classes to recommend. Someone with only 100k has very different opportunities from someone with a billion shillings to invest. I also gauge if the person has access to credit or financing.

3. Are there some ideas you are looking at?
Most people ask for advice just to confirm their own ideas. I learnt this the hard way. I would often get shocked whenever I would recommend something and the person does the exact opposite the following day. So my approach now is to refine people’s own ideas rather than suggest new ideas. The critical thing is to listen keenly and really understand what the person has in mind.

4. Explain this particular idea a bit more?
Now I lock unto the person’s initial thoughts and try to expound it a bit more. I might ask why this particular idea instead of something else. It is interesting how people really open up when they are talking about their pet projects. Again the idea is to listen and help to flesh out the idea. So I listen, paraphrase, summarise and repeat back what they are saying.

5. Tell me a bit more? Probe the idea a bit more (return, risk, demand, experience)
This stage helps me to evaluate if the idea makes any business sense. Now I have to be gentle here because many ideas don’t make business sense even if they sound really good. Again my job is just to ask questions to help the person refine their idea. So I might ask about potential customers, income assumptions, cost structures, return on capital, pay back period, etc. Now most people don’t have these answers at the start of any project. So if I notice that they intend to commit a lot of capital I encourage them to get someone who can run the numbers for them. I also inquire if they have any experience in this type of venture. The lack of experience is usually a red signal that the person may lose their capital and I point this out to them.

6. Is it possible to test out this idea before committing too much capital?
By now I have a good sense of the level of commitment to a certain course of direction. If the person is really bent on doing something I encourage them to start small and test out the idea without committing too much capital. I know from experience that experience is the best teacher. It is good to ask for advice but real learning happens when you actually start doing stuff. I encourage them to learn as they go and experiment as much as possible. I warn them, however, that after a few years they may have more knowledge than capital, because they will have run out of cash.

7. Have you considered other options?
Sometimes people believe they have only a few viable options. So this question helps them to think a bit broader. We all have our biases and they show up in our finances. We are more likely to invest in things which present very little risk but with a potentially high return. We are unlikely to repeat something which lost us cash. We tend to do what everyone seems to be doing. We get excited by people who seem to be making cash doing a certain thing. So this question helps to challenge some of these biases.

8. Have you heard of treasury bonds?
So I then start providing some information about possible alternatives to consider. It is easy to imagine that after talking about these things for years everyone gets it. But this is far from reality. The average person has never heard of treasury bonds or bills. So I try and explain as I gauge interest. If there is no interest I move on to next question.

9. How about unit trusts?
Same thing here. The majority of people don’t know what these things are. The reason I mention these options is that these are relatively simple investments for someone to try before risking their capital in more complicated things. I gauge interest and if there is none, I proceed. Remember most people just want you to confirm their ideas and not to give them new proposals.

10. How about shares?
The questioning moves to other businesses forms. Before starting your own business consider whether it might not be easier to buy shares in a listed company. This belief that you have to start and run your own business may not be valid in our current market. I listen as I prepare to move on. The aim is not to change their minds which is impossible but at least to raise awareness of other opportunities.

11. Is real estate appealing to you?
I typically end with real estate which is quite appealing to many people. But I will only mention it if the person has some reasonable cash or access to financing. In case they want to explore this farther I will give them the tools to do a deeper analysis and make an informed decision.

At the end of the session based on the answers provided I share some resources with the person to help them farther with their decision. For instance if the person insists on starting a particular business I might share a contact of someone doing something similar. If they want to explore government bonds I refer them to a broker.

The idea is to separate myself from their decision making process. This way they take full responsibility for their own financial decisions and discover for themselves what the best investment is.