Imagine a high-stakes poker game, but instead of chips, the currency is companies, dreams, and the very future of the economy. Welcome to the thrilling world of stocks and bonds, where fortunes are made and lost in the blink of an eye. Buckle up as we dive into the adrenaline-pumping world of socks.
Have you wanted to start investing in stocks but do not know where to begin? Investing is a dance between risk and reward but for many, choosing what works best for them feels like picking a side in a high-stakes game. So, before we dive into the world of investments, ask yourself:
- Risk tolerance: Are you Captain Calm Seas, seeking stability above all else? Or are you Captain Moderate Breeze, okay with a little tide for extra yield?
- Investment horizon: Are you planning a quick day trip or a long voyage? Knowing your timeline will help determine the best investment.
- Financial goals: Are you seeking steady income for retirement or just adding ballast to your portfolio? Your goals will guide your investment selection.
Understanding the basics of Stock investment
Imagine you’re walking down the street, and suddenly, a delicious aroma wafts from a bakery. You peek inside and see trays of warm, golden croissants, glistening pastries, and fluffy cakes that make your mouth water. But hold on – instead of only buying a croissant, what if you could own a piece of the bakery itself? That’s the magic of stocks! When you buy a stock, you’re essentially buying a tiny slice of a company. It’s like owning a miniature oven in that bakery, sharing in its success (and maybe even getting free croissants!). According to Florence Njoki of ABC Capital, buying stock means you become a partial owner of a company and people do this for various reasons eg. to earn dividends and bonuses, or for the sheer pride of being a part of a company or to get capital gains when the shares go up.
Stocks in Kenya vary depending on your goals and risk tolerance. They are classified into:
- By Listing
Listed companies are stock listed on the Nairobi Stock Exchange (NSE) and offer greater liquidity and transparency as compared to unlisted (e.g. Safaricom) while unlisted companies do not trade on NSE but are available for purchase through private placements or over-the-counter (OTC) markets. Although unlisted companies offer higher returns, they also carry a higher risk due to less stringent regulations.
- By Industry
Industry stocks are divided into agricultural, banking, commercial, manufacturing stocks and Energy and petroleum companies.
Buying stocks
According to Florence Njoki, to trade, you will need to submit a copy of your KRA PIN, National identification card (ID), passport photo and filled CDS account opening forms to your stock broker, which will then be submitted to the Central Depository and Settlement Corporation (CDSC. You will then be able to buy stocks on the share trading platform at the click of a button.
Before investing in any stock, it’s crucial to understand the risks involved in buying stock. Although stocks have a high return, they are risky when compared to bonds due to defaults e.g. when a company goes under.