How to use end of year bonuses wisely

2021 will go down history as one of the toughest years for most Zimbabweans.

Other than the economic hardships the country had already been going through, COVID-19 made the situation even more difficult.

Household budgets have been stretched to the limit, so the chance of an approaching festive season being sweetened by a thirteenth cheque or bonus, and the possibility of extra spending money is very welcome.

Instead of regarding a bonus as ‘extra money’ that falls outside traditional income and can therefore be spent freely, investing one’s bonus has advantages.

Bonuses tend to come around the holidays, meaning that many employees are in for a nice supplemental cheque soon.

While it can be tempting to splurge on the latest smartphone or treat oneself to an
extravagant vacation, excessive spending may not be the most productive way to handle an end of year bonus.

Making a long-term plan and investing one’s hard-earned money in shares or unit trusts will pay of more in the long run.

Owning shares has several advantages. An investor can make money on the capital market sometimes at huge rates of growth. One can buy shares when the price is low and sell the when the price is high. When one owns shares in a company, they own a part of that company.

This means, they also have the chance to share in the capital growth of the company by receiving dividends. An investor can also earn dividends which are periodic payments that some companies give to shareholders based on company profits.

Dividend-paying stocks can provide a steady source of income for shareholders without requiring them to buy or sell shares. However, not all companies pay dividends. Many choose to reinvest all profits back into their operations rather than distribute earnings.

Another advantage of being a shareholder is the ability to influence decisions in the company that issued the stock, this can potentially affect the value of an investor’s shares. For example, shareholders may have the right to vote on appointing the board members that run a company; and in some companies the shareholders themselves may sit on directive boards.

By speaking out, and asserting their right to be kept informed on appropriate developments, investors are able to influence direction and policy.

Shares are traded on the Zimbabwe Stock Exchange and the Financial Securities Exchange. They are highly liquid which means that they can be converted into cash quickly and with minimal impact to the price received.

Unlike some investments, there is relative ease in the transfer of ownership and the movement of equities.

While equity markets have historically produced higher returns than cash or fixed income over the longer term, the risk of capital loss exists especially over the shorter term.

One should be aware of the risks of investing and speak to a qualified financial adviser to determine if an investment in shares is the kind of investment they are
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