INVESTING IN STOCKS IN NIGERIA AND WHAT YOU NEED TO KNOW

Investing is a way to set aside money while you are busy with life and have that money work for you so that you can fully reap the rewards of your labor in the future. Investing is a means to a happier ending. Legendary investor Warren Buffet defines investing as "…the process of laying out money now to receive more money in the future."

In other words, the goal of investing is to put your money to work in one or more types of investment vehicles in the hopes of growing your money over time.

INVESTING IN STOCKS IN NIGERIA

Key lessons to note include

Investing as an act of committing money or capital to an endeavor with the expectation of earning an additional income or profit.

Investing earmarks money for the future, with the hope that it will grow over time. 

Investing, like any other business, also comes with the risk for losses. 

Investing in the stock market is one of the most common way for beginners to gain investment experience.

ALSO READ - INVESTING IN TREASURY BILLS 2020 | Treasury bills in Nigeria and all you need to know

 

What Kind of Investor Are You?

Before you commit your money, you need to answer the question:
  • What kind of investor are you?
  • What are your investment goals? Long term, Intermediate term or Short term goal?
  • What are the reasons/purpose of your investments?

Are you buying the stock for capital appreciation? or you are buying the stock to get a steady Income?
Being able to answer the questions will help you in investing wisely.

Investing in quality stocks becomes less risky as the time frame lengthens. Stock prices tend to fluctuate daily, but they have a tendency to trend up or down over an extended period of time.
Even if you invest in a stock that goes down in the short term, you are likely to see it rise and possibly exceed your investment if you have the patience to wait it out and let the stock price appreciate.

1. Short-term: It means investing in stock market for a day , week , month or less than a year. It's hard to predict stock so short-term is bad choice some times especially for new investor. .
The short term can be irrational because so many investors have so many reasons for buying and selling that it can be difficult to analyze.

Short-term stock investing is very unpredictable. Stocks even the best ones fluctuate in the short term.

2. Intermediate Term: It is a time period that falls somewhere between short- and long-term. It is mostly for a period of two to five years. But some stocks are not good for Intermediate term investment.

If you plan to invest in the stock market to meet intermediate-term goals, consider large, established companies or dividend-paying companies in industries that provide the necessities of life (like the food and beverage industry or electricity utilities).

3. Long Term: To build wealth in stock investing you need to think long term. It is the investment of a stock for 5 years or more years.
When you measure stock investment without other investment within long term you will find out that stock always excel within those years.

Two purposes of stock Investment

1.Growth Investing (Capital gain)

2.Income Investing
Growth Investing: Most people invest in stocks for capital appreciation, so that they can buy cheaper and sell it higher after some time.
Appreciate is just another way of saying grow in the stock market. If you buy a stock for N50 per share and now its value is N80 per share, your investment has grown by N30 per share, that is appreciation.

Income Investing: This is when you invest in stock in order to get a steady income , most of these categories of investors do not care much about the price of stock going up. All they need is a stock that perform very well consistently.
So, if your main purpose of investing in stock is to create income, then you should buy stock that pay dividends. A dividend is a payment made by a corporation to its shareholders, usually as a distribution of profits. When a corporation earns a profit or surplus, the corporation is able to re-invest the profit in the business and pay a proportion of the profit as dividend to shareholders.
Dividend-paying stocks do have the ability to increase in value. They may not have the same growth potential as growth stocks.

You still have to do your homework and choose stocks wisely, because even in good times, you can lose money if you invest in companies that go out of business. It is also advisable to employ the services of a good broker.

Commissions and Fees

In most cases, your broker will charge a commission every time that you trade stock, either through buying or selling. Some brokers charge no trade commissions at all, but they make up for it in other ways. There are no charitable organizations running brokerage services neither are there "free lunches".

Depending on how often you trade, these fees can add up and affect your profitability. Investing in stocks can be very costly if you hop into and out of positions frequently, especially with a small amount of money available to invest.

Remember, a trade is an order to purchase or sell shares in one company. If you want to purchase five different stocks at the same time, this is seen as five separate trades, and you will be charged for each one.

Diversify and Reduce Risks

Diversification is considered to be of importance in investing. In a nutshell, by investing in a range of assets, you reduce the risk of one investment's performance severely hurting the return of your overall investment. You could think of it as financial jargon for "don't put all of your eggs in one basket."

In terms of diversification, the greatest amount of difficulty in doing this will come from investments in stocks.

We can in conclusion say that it is possible to invest if you are just starting out with a small amount of money. It is more difficult than just selecting the right investment and you have to be aware of the risks that you face as a new investor.

You will have to do your homework, ascertaining how much you intend to invest, find the minimum deposit requirements and then compare the commissions to other brokers. Chances are you may not be able to cost-effectively buy individual stocks and still be diversified with a small amount of money. You will also need to make a choice on which broker you would like to open an account with.

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