It is time to risk

A man rears goats.Diversifying farming practices results into a balanced risk profile. PHOTO/Rachel Mabala

What you need to know:

Whether you decide to go into agriculture or any other business, there is always a risk

There is no specified time to risk but experts reveal that a high-risk appetite for investment occurs between late 20s to early 30s. This is a stage where many fingers get burnt after trying a couple of failed ventures. However, those that consistently keep stirring through the turbulent waters normally make it.

In reference to the Ministry of Agriculture, Animal Industry and Fisheries, Uganda’s agricultural sector presents multiple highly-profitable investment opportunities both for profit-oriented investments and partnerships. A National Social Security Fund (NSSF) financial literacy webinar held in May hosted two successful farmers Aggrey Kankunda, an agripreneur and professional accountant and Hamis Ssemanda, a seasonal goat farmer under a title dubbed, ‘Time to risk’, where they comprehensively steered the wheel regarding when to invest.

Kankunda who deals in banana plantations, pasture growing and cow fattening, admits that a situation where one comfortably pursues a high risk and high return is a tough one. “Life as it is risky; one can be hit by a vehicle or motorcycle while walking on the street. So, there is nothing that you are going to do and expect to be comfortable. Whether you decide to go into agriculture or any other business, there is always a risk to whatever you do.”

For him, the things that are high return and high risk are many times short term and speculative, especially those that trend.

“If you are going to make money, get out of your comfort zone. You are not going to comfortably chase after high returns,” Kankunda reaffirms.

Ssemanda thinks quite contrary that farming is comfortable especially if you start it well. There is a high risk in it depending on the approach.

“If you keep your money with you and don’t invest it, then its a higher risk than a person who is investing because the bank keeps on deducting its charges. Failing to risk is the highest risk,” he says.

Calculated risk

Investopedia, a website specialised with financial education says it is important for investors to understand the idea of risk and how it applies to them. Making informed investment decisions entails not only researching individual securities but also understanding your own finances and risk profile. To get an estimate of the securities suitable for certain levels of risk tolerance and to maximise returns, investors should have an idea of how much time and money they have to invest and the returns they are seeking.

The experts believe seasonal crops are more prone to risk while the risk with animals is manageable.

“First study what you are going into. Don’t be taken by trends. Try to manage your risk and diversify it. Do things that are interconnected,”  Kankunda says.

Kankunda demonstrates how he has interconnected different ventures on his farm such as scaling the number of cows and goats to provide manure for the banana plantations as well as growing pasture to feed the animals.

Going into agriculture does not necessarily mean digging with a hoe. The agripreneur encourages people to join farming in other interventions as they look at the spectrum of the value chain that fits one’s risk appetite and interests to make money as opposed to going through the long haul.

Kankunda has learnt a couple of things from visiting successful farmers in Uganda, Kenya, and South Africa. The lessons entail the game of patience, being present on the farms and not looking for immediate returns. He has learnt the game of balancing the risk profile. Also, diversifying the farming practices results into a balanced risk profile.

Age

The age matters at which one has an appetite for risk. So, if one is 50 years, the risk appetite should be winding down. Those with a good appetite of risk range from their late 20’s and early 30’s. The agripreneur started his agribusiness at 28 years in poultry farming and burnt his fingers in a number of other businesses.

Also, the amount of money matters. Chances are if one has Shs50 million or more, they want to take a high risk as compared to someone with Shs5 million.

Having worked for seven years in formal employment, Ssemanda threw in the towel and embarked on farming after he witnessed farmers’ lives transforming for the better. He also realised he was capable of executing the project with the earned experience gained overtime. In three years, he has grown his herd to more than 1,000 goats.

Attitude towards farming

Although many youth still look at farming as a dirty job, the opportunities in agriculture are immerse. However, one of the reasons we have not scaled up agricultural practices is because the opportunities like fertile soils, availability of rains are taken for granted and not so much effort has gone beyond that. The experts insist the need to invest in fertilisers and irrigation because of changed climatic conditions.

Kankunda admits that people have mindset obstacles. “We don’t take farming as a business much as we think we can get money from it. We don’t give it the attention it requires, dedicate time for it, investments needed neither are we properly organiSed. Some don’t have books of accounts to access funding from the Private Sector Foundation.”

Monitor

However, more money is spent on fuel to travel and airtime as opposed to living on the farms. First and foremost, you ought to be on the farm, check and record books of accounts to assess if they are making profits or losses.  For any serious farming, experts recommend you only borrow money to expand your business as opposed to the starting phases.

Retain the current job for capital gains

Look out for opportunities where you intend to invest while in office. Ssemanda advises against leaving office to wholeheartedly engage in farming because it is where the capital is churned. Understand the project while still at work.

“Thereafter, start investing with a portion of 50 per cent off your salary and take off 20 per cent to eat and move around there,” Ssemanda says.

In brief, when you start working, start planning for your retirement, use employment to get capital to start out on your own.

Regardless of how much one is earning, it can do something.

Balancing risk and return

  • Diversify within and across asset classes.

            Diversify stocks by size, between value and growth, and across countries.

  • Research shows that investing for the long term reduces investment risk because, even though the price of a given investment may rise and fall within a short period of time, it will gain back any losses over the long term.
  • Monitor your investments. As assets gain or lose value, their balance may change and reduce the diversity of your portfolio. If the percentage of any asset strays too far from its target weighting you may need to rebalance your portfolio.

Managing risk

Control investment risk

Controlling risk is key to your business strategy, in our last series we discussed investment risks. No investment is completely risk-free but some carry more risk than others, generally, the higher the expected return, the greater the risk.

Balance risk and return.

Risk management requires prudent balancing of risk and return. Assessing this balance, based on individual needs, should be the main concern when building a portfolio. Everyone talks about risk management but very few actually do it. In this series I explain why having some investment risk is important and how you can minimise it without sacrificing returns.

The solution to pollution is dilution.

Avoid concentrating in a stock, industry, sector, asset class or country. Diversify.Diversification works not because you pick winners but because you select things that are different.

So, broadly diversify within and across asset classes.

By Business Daily