By Coreen Madanha
As the year draws to a close, we wish you and your loved ones a Merry Christmas 🎄 and a restful holiday season! This period offers an ideal moment to reflect on your long-term goals and how the ‘From Acorn to Oak: The Strategy of Ownership‘ translates into tangible returns. This edition focuses on the two main ways Zimbabwean investors make money: dividends and capital gains.
This is the essence of passive income, money earned simply by owning an asset, not by active labour.
The Silent Threat of the “Pillow Bank”
For many years, due to historical volatility, many Zimbabweans have defaulted to storing cash at home, the “Pillow Bank.” While this feels safe, it is, in reality, the riskiest form of wealth management because it is guaranteed to lose value.
- Practical Reality: Cash kept idle earns zero, yet the cost of goods rises constantly due to inflation. The money you set aside today loses a significant portion of its purchasing power by the end of the year.
- The Acorn Strategy: The capital markets offer the only regulated pathway to counter this loss. Dividends and capital gains are your formal return for ensuring your money is working and growing faster than inflation.
- The Income Stream: Dividends
A dividend is a company’s decision to share its profits directly with its shareholders.
- Practical Example (Yield Calculation): Imagine you own shares in Cake Ltd priced at ZWG$100, and the company pays a dividend of ZWG$5 per share, resulting in a 5% dividend yield. This cash return supports your family’s daily needs here in Zimbabwe.
- Cash or Shares: Dividends are usually paid out as funds but can sometimes be paid in extra shares (called a Scrip Dividend).
- The Growth Driver: Capital Gains
A Capital gain is the profit you make when you sell your asset for more than you paid for it. This shows the market believes your company is succeeding and is worth more.
- Practical Example (Capital Gain): If you bought 1,000 shares of Cake Ltd for ZWG$20 each and sell them today for ZWG$28 each, you have earned a capital gain of ZWG$8,000. This is the reward for growth.
Investing with Purpose: Retirement and the Rainy Day
When designing your ‘From Acorn to Oak’ strategy, your portfolio must serve two essential, practical purposes for your future financial security:
- Building the Retirement Oak: The most powerful element of market investment is time. By investing early, you harness the power of compound growth, where your earnings begin to earn returns on themselves. This snowball effect is the primary tool for building the substantial capital required for a dignified, self-sufficient retirement, protecting you from relying solely on unstable pension funds or family support.
- Securing the Rainy-Day Fund: While long-term growth is critical, the liquidity of listed shares and regular dividends can act as an accessible safety net. This blend of income and liquidity is the best defence against life’s unpredictable moments, ensuring you do not have to sell off your core long-term assets at the wrong time.
Now that you understand how passive income is generated, the next crucial lesson for securing your long-term Oak is wealth protection. We dedicate next week to the first rule of investing: managing risk through strategic diversification.
Coreen Madanha is the Managing Director for InvestIQ Oak Wealth (Private) Limited, which is a registered member of the Zimbabwe Stock Exchange (ZSE) and is licensed by the Securities and Exchange Commission of Zimbabwe (SECZ).
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