PAUL  NJOKI: BEING ON THE RIGHT SIDE OF THE COMPOUNDING EQUATION

A look at the financial jungle through the investment lens of a wealth manager

By Joseph Macharia

Paul Njoki, head of affluent banking and wealth management at Standard Chartered Bank is a true financial evangelist. He has been vocal  in  pontificating on the importance of savings and wealth creation. If you ask him a question about wealth, he will   drown you with an avalanche of financial wisdom. Nuggets of wisdom gush out of his mouth with an unrivalled intensity.

He trained as an electrical engineer at the  University of Nairobi. It turned out life (or is it fate?) had other plans for him. Lured by numbers,  he moved into accounting, studied ACCA, before pursuing a degree in accounting from the UK then proceeded to do a CFA (Chartered Financial Analyst) programme. He started as an auditor but in the years to follow,  he would switch to banking. “It’s really interesting looking at how things work from a finance perspective, but with a background of engineering,” he chuckles.

When not busy  attending  meetings    in power suits, you’ll find Paul Njoki golfing or strolling in the woods. He confesses that “green is my thing.” He also derives a lot of satisfaction from planting trees. So far,  he has over 20,000 trees to his name. He spoke to BL Magazine in a café amid sips of black tea.

As a wealth manager what exactly do you do?

I basically help clients grow, manage and protect their wealth. We use a basic frameworkthat looks at needs for today, needs for tomorrow and needs for forever. Essentially,  today we look at cash flows. Tomorrow is about investment and protection.Forever is more of a legacy plan, how to deal with transition of wealth from one generation to the next.

You’ve been at the forefront talking to people on the importance of wealth creation. Briefly tell us about it?

If you think about it, humanity has  for the longest time been   trying to fulfill certain life goals. Whether it’s putting a kid to college, owning a home, taking care of a sick one or it may actually be planning for retirement. The sad story is that most people do not plan for all these. In wealth management,  we help people think of these goals and plan proactively. We then find financial instruments and investment options that address all these needs.

Many people wait until they are approaching retirement age to start doing something about it. Where do we stand as a country?

We are in challenging times. As a country, we started very well.  Since independence, people were savers and they didn’t earn much. Today you may find somebody with a much better paying job, but they are not able to save, instead they are accumulating debt. At some point, obviously, it’s going to become unsustainable, because they will have so much debt in their fifties  with a very short working horizon. They may have to use all their pension and savings to pay off debts.

Parents are hoping children will take care of them. I don’t actually think that the next generation will take care of us. Most people retire without cash flows. They   might  have  incurred   huge debts  while   educating  their  children, but  the latter may  not support them  in their sunset  days since  they are equally  in  debt  . It is a very worrying trend.

From your experience, what are some of the financial skills one needs to possess in order to manage finances effectively?

We look at it from the principles of wealth management which apply  to most things in life. Firstly, we talk about discipline for saving a part of your income. Secondly, it is important for us to realize that risk and return are related. There is no return without taking some level of risks.

If you don’t take any risk, you are taking a risk by not doing anything because inflation will eat up into your money. You have to do something and that is  where investments come in. Seek help from financial advisors to assess your risk appetite and how to manage it so that you can  invest.  It’s also wise to take a small portion of your income and buy protection like insurance.

In wealth management , don’t put your eggs in one basket. Diversify in terms of investment categories. Buy dollar or pound investments and diversify geographically. And of course, start early, learn the power of the compounding equation.

In the midst of the current tough economic times,  what can an individual do at the personal level to ensure financial stability?

When things are tough, it’s time to put the four wheel drive on. So people need to think of how to save more now and tighten their belts a little bit to plan for the future. Now practical things: Don’t keep up with the Joneses, live within your means and save no matter what.

Covid-19 taught us important   lessons. We just need to get the script right. Times are tough and there is   no magic so we need to start saving and investing now. Be on the right side of the compounding equation. But if you stay like an ostrich and bury your head in the sand hoping things will change, voila, they won’t.

If you can afford a loan now, go get it   and  invest. Start servicing   your debt  using   the    investments. If possible,  get a mortgage early because anyway you will pay rent, so why pay somebody else, why can’t you build your own equity? Again a loan to invest is a discipline to save.

Interest rates on short term and long term bonds are at historic highs, at the same time most blue chip securities   are down. What do you make of the investment landscape in Kenya right now?

When the stock market is low, it’s time to buy, as always. Buy when there is blood in the streets, unless you are retired and need income. If you are looking at long term wealth, you need to diversify your wealth. Look at opportunities in foreign currencies.  As  a bank,   we can help diversify and manage currency risk as well as inflation risk.

Think of   other opportunities like real estate. If you have an eye for real estate, go for it. Generally, real estate is a hedge against inflation but not always. When it’s tough, the tough gets going and those people who see opportunities at such times are the ones who make real wealth. If you are running away when the market is low, then you are not an investor, you are a speculator. What happens is you get back when the market is hot and you get punished.

At an individual level what are some of the best financial decisions you have made?

A couple of them (chuckles). I invested early in markets, made mistakes and learnt from them. Also creating a discipline of saving has been a good one. Another one I did was to get a mortgage early. So it got me into the discipline of savings.

What is your philosophy when it comes to investments?

My philosophy is a   slower and   more conservative approach where you just keep compounding slowly like the tortoise as opposed to jumping here and there.

What would you advice generation Z and millennials in terms of managing their finances?

Time. They are very rich in time. If they learn early the compounding equation they have the best chance because the key item in that equation is time. If they start investing immediately and stay disciplined,  they will make it because it doesn’t matter how much they start with.

They say golf is a rich man’s game. Is it so?

No. It’s not. Golf is about networking. The people who think it’s a rich man’s game are missing a lot of opportunities because it is a discipline game. It’s a game that teaches you about character and how to handle difficulties. It is a discipline and honesty game; you report your own scores even when nobody is seeing.

Your favourite quote that exemplifies your life?

The compound interest one by Albert Einstein that goes: “Compound interest is the  eighth   wonder of the world. Those who learn it, earn it, those who don’t, pay for it.” I also like Wangari Maathai’s: “The people who destroy the environment are not the ones who pay the price for it.”

Where do you draw your inspiration from?

Nature; when I get to walk in the woods, that’s my most creative time. Of course I  am getting a lot of inspiration from my four children. (Chuckles) Just looking at them grow I think to myself, “Hey I have a generation coming up so I better do something about it.”

What are you reading currently?

5 A.M Club by Robin Sharma. Though my all-time favourites are: ‘Unbound’ by Prof. Wangari Maathai and ‘Straight from the  Gut’ by Jack Welch.