Development of an optimal portfolio of assets for a teacher investor subject to risks: a case of secondary school teachers in Mbeere South District

Abstract

The main objective of any business organization is to maximize profits or rate of return on capital investment. In order to achieve this there is need for an individual investor to develop an optimal portfolio of assets that will maximize his rate of return subject to his risk preference. Informed decision making on investment would help avoid risky, low return yielding assets. Efficient market hypothesis by Fame F. and French R.R.(1992) states that current prices of securities and other assets should reflect their level of risks and hence their expected rate of return. However, due to inefficiency in the market, the prices given do not reflect the marginal cost of investments including the wage rates of labour. This accounts for the low returns on teacher's investment in education and other areas as reflected by the mass media in the past few years. Daily Nation (21ld October 1997, 24th January 2009 among others) and increased demands for pay hikes by trade unions representing them (K N.U.T and K.U.P.P.E.T).The researcher researched on how secondary school teachers (who are the elite and most widespread potential investors in education and other sectors) could develop and maintain an optimal P.F of assets. Teachers impart a lot on the community by the nature of their profession and this would create job opportunities. This is vital for effective service delivery, achievement of millennium goal of education for all (EF A) and realization for vision 2030. The main problem was 'how teachers could develop and maintain an optimal portfolio of assets that maximizes their returns from investment subject to risks'. According Reilly Etal. (2006) there's need for investors to shift their attention to what they "can keep" and not what they can "earn from investments". The researcher carried out a descriptive research in order to obtain data that would help identify various investment opportunities available to teachers and the constraints faced in their attempts to invest as well as how best to diversify their investments in order to minimize risks. The researcher, identified various risks to investments through application of portfolio theories, CAPM theories and multi factor theories to show how an investor could choose optimal P.F. Risk management strategies should be adopted to minimize risks. Primary data was obtained using questionnaires on teacher's selected using stratified sampling of forty teachers in sixteen secondary schools out of three hundred and ten teachers in thirty five schools (sample proportion of 12.9% which is greater than the recommended ] 0%) Mugenda and Mugenda (1999). This sample was selected from the four divisions namely: Mwea, Gachoka, Kiritiri and Kiambeere in Mbeere South district. The primary data obtained was analyzed and presented using charts to determine the types of investments that have been neglected which could yield higher returns. Application of computer software programme (S.P.S.S) on the primary data helped in calculating rates of return on individual assets and portfolio of assets and their averages as well as their standard deviations for the year200S/2009. Risk per unit of return was obtained by calculating the coefficient of variation (CV) which is a standardised measure of risk per unit of return. The main limitations to the study were lack of adequate funds to carry out research for the whole district as the researcher was a self sponsored, school based student. This research is significant as it would expose the teachers / investors on available investment opportunities and limitations in the district/market. It was to help identify risks exposed to returns on investments; risk management strategies which if adopted would help develop Entrepreneurial culture /accumulation of human capital reduce unemployment level in line with vision 2030 of having an industrialized Kenya.