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Tips on how to invest in stocks

By Mumbi Kinyua | Published Wed, March 14th 2018 at 16:19, Updated March 14th 2018 at 16:25 GMT +3
Nairobi securities Exchange (NSE) trading floor (photo: file)

NAIROBI, KENYA: History, and a long list of successful entrepreneurs, has proven that investing in stocks is one of the easiest ways to build wealth over time. It is quite possible to make a tidy sum from capital gains or dividends from a well-chosen share portfolio. However, the appeal of big money has driven people into bankruptcy due to lack of patience and bad timing. Here are a few pointers to making a successful foray into stock investment.

What you'll need to know

How can I identify the best company stocks to buy?

Investment banks and stock brokerage firms are licensed entities mandated by Capital Markets Authority to carry out the activity of buying and selling of shares. An investor should approach one to act as an agent for them in buying and selling of stocks.

Who is a broker and how would they assist my investment?

A broker refers is a firm or person that has a trading platform which an investor or trader can easily use to make orders to either buy or sell a security. A broker would not assist in your investment per se but can aid an individual in greater autonomy of their portfolio.

Is there a minimum amount of money I should have to buy securities?

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There are two types of investments, bonds and equities. Bonds need a larger amount of money, at least Sh50,000 as the initial investment. Equities are more common than bonds and much cheaper to buy.

The least amount needed is not quantifiable but depends on the price of shares, but you can only buy a minimum of 100 shares.. This means that any amount of money that will equal 100 shares of any stock will be needed to start with. Thereafter, one can deposit any amount of money for as long as it’s enough to buy the amount needed.

Do brokers get part of my dividends? How much do they earn?

Dividends are issued by the registrar of the company you have invested in and don’t pass through brokers. Earning a dividend is dependent on the number of shares held. Remember, not all listed companies pay dividends. The commission earned by a broker on the sale of securities mainly depends on the amount invested and is inclusive of all other levies by regulators but the maximum fee is 2.1 per cent.

Is the amount earned by an investor taxable?

Kenya Revenue Authority does not tax capital gains but dividends are taxable.

What are the indicators that it is a good time to invest?

There is no good or bad time to invest, the best time is now and is a continuous process. An avid  investor always has to make sure their portfolio is aligned and held for long-term purposes. Indicators can come in different ways and forms and can be heavily dependent on an individual. Some will look at when a price goes down, others at what the company’s plans are in terms of growth and how the company is being run or performance of the stock over time. All in all, it’s always good to approach a licensed broker and get a professional opinion as they have a deeper understanding about a company.

What documents do I need to start investing?

One needs to approach a broker and be provided with account opening forms, commonly referred to as Know Your Customer forms. You also need to provide a copy of your national ID and Pin.

What is a CDS account?

A Central Depository and Settlement account (CDS) is the one where shares will be transferred and held once they are bought and, when sold, will be transferred out of to their new owners. This account is created when one registers with a stockbroker.

What are some of the risks involved in buying stocks?

Stocks are subject to risks both at company and economic level. An unexpected event outside one's control or inter-company negative development that can affect share prices. Risks include the fact that returns are not guaranteed, loss of money as price goes down and market risk which can affect the entire market. It is a necessary to understand that risks can occur and should not scare youfrom investing.

How long is each investment?

Investments can be long and also short depending on one’s needs and wants. This will also depend on the availability of the security through demand and supply in the market. Investors are advised to have a long-term outlook on their investments and put their money in good companies as well as diversify their holdings to capitalise on market gains. 

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