ETFs Explained The Kenyan Way

Anita had always heard people talking about “investing,” but it sounded like something only the rich or super-serious people in suits did. One Friday evening, while waiting for a matatu, she overheard two young men saying, “Msee, I just bought an ETF today. It’s easier than you think!”

She became curious. ETF? What is that? Some new phone app?

If you’re like Anita, this guide is for you. Let’s break down ETFs in the simplest and most Kenyan way possible.

So, what exactly is an ETF?

Imagine walking into Naivas with a trolley. Instead of buying one item, you fill it with a mix of bread, milk, sugar, fruits, and unga, literally a variety. That trolley is like an ETF.

An ETF (Exchange-Traded Fund) is simply a basket that holds many investments together, like shares, bonds, commodities, or even companies from different countries.

Instead of buying one company’s shares, you buy a piece of the whole basket. Simple, right?

Think of it like joining a chama. When you put your money in, you’re not investing in just one thing; you’re contributing to a group effort that buys different items.

Why do people love ETFs these days?

ETFSs have become popular for three main reasons:

They are simple

You don’t need to understand every company inside the basket. You just buy one ETF and get exposure to many things at once.

They are cheaper

Buying shares of many companies individually can be expensive. But buying a piece of an ETF costs much less, like buying one plate of food that already has everything, instead of buying each ingredient separately.

They spread your risk

If one company inside the ETF has a bad week, others in the basket can balance it out. It is the same logic as not putting all your eggs in one basket.

Different types of ETFs

Just like the way a supermarket has different sections, ETFs come in various types.

Stock ETFs

Think of it as a basket filled with shares from different companies, like Safaricom, bank stocks, and tech companies abroad.

Bond ETFs

This is like a basket of loans(bonds) given to the government or companies. For example, if the government needs money to build roads, it borrows from investors (like you) and pays interest. An ETF bundles many such loans.

Commodity ETFs

Inside this basket are physical goods like gold, oil, or even agricultural products. For example, instead of buying a whole bar of gold(which costs a fortune), you buy an ETF that tracks the price of gold, like owning a digital watch of gold in your phone!

International/ Regional ETFs

These include companies from different countries. It’s like buying a basket of African companies or global tech companies such as Apple in one go.

How to buy an ETF

Open an Investment Account

Use an online investment app, your bank’s investment platform, or a licensed broker

Deposit Money

Transfer cash from your bank or MPESA.

Pick Your ETF

Browse for options, e.g., ABSA NewGold ETF, and enter the number of units you would like to buy.

Keep an eye out for your investment

You can use your investment or trading platform to keep an eye on your ETF investment after making a purchase.

A gentle caution: ETFs are not risk-free

Even though ETFs are safer than putting all your money in one company, they can still go up and down just like fuel prices or fares on a rainy day. Also, not all ETFs are equal; some are riskier (like tech stocks), others are safer (like bonds). Start small, learn, and diversify!

Final Thought

Investing is not only for rich people. It’s not complicated. It is simply taking small steps that your future self will thank you for.

Just like Anita, who finally bought her first ETF during a lunch break, you too can start small, 500 bob, 1000 bob, literally any amount.

Now, go on, open that app and buy your first “basket” today!