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Most investors fail to incorporate the effects of taxes and inflation on their investments. Both may reduce your net return and leave you short of your desired goal. Returns you earn will attract taxes in varying forms, and you should try and invest where returns attract low taxation. Inflation will affect the buying power of your investment and could make unable to maintain your current standard of living (in terms of what you can buy) after you cash in.

You should go for investments that automatically compensate you for inflation. You should also seek the assistance of investment professionals on how you can reduce the effect of taxes and inflation on your investments

If your investments perform well, you will be rewarded by the power of compounding. Compounding works best if the time period is long. For example, a modest investment of kshs.50, 000 at 15% p.a. would compound into kshs.1.6 million after 25 years! The earlier you start investing, the less you will need to save, and the more you will earn in future.

Start by carefully assessing your monthly budget and see how much you can reduce from your current expenses towards freeing more funds for investing. Be reasonable and realistic, but always remember that discipline is a very important asset towards achieving your investment goals.

It is important that you allocate your savings into investments with a risk profile that suits you. Always remember that risk and reward go hand in hand, but risk is like fire and should be handled with care. In most cases, your risk tolerance will depend on your age.

Experts recommend the following method for assessing how much you should invest in risky assets: If you have low risk tolerance, subtract your age from 100 and the result is the percentage you should allocate in risky assets such as stocks and direct business interests. If you have moderate risk tolerance, subtract your age from 110, if you have high-risk tolerance; subtract 120 from your age.