With the drop in the prices of some shares on the Nairobi Securities Exchange (NSE) like Safaricom, now is the best time to get into the market and acquire them. Investing in stocks is a good way of diversifying your investment portfolio as well. It is also a rewarding way to grow your wealth over the long term.
Here’s a step-by-step guide on how to invest in shares at the NSE:
Understand the Basics
Before making a decision to investing, it is important to familiarize yourself with the stock market and how it works. You also need to learn about shares, stock exchanges, reading and interpreting company financials, and the factors have an influence on share prices.
Set Investment Goals
Just like any other investment, you need to determine your investment objectives, whether it’s long-term wealth accumulation, generating income, or capital growth which is essentially an increase in the value of the shares over time. You also need to define your risk tolerance (that is in how low you would let a share price fall before selling) and investment horizon (how long you would want to hold the shares before selling) to guide your decision-making process.
Research and Analysis
Before making an investment decision, you need to conduct a thorough research on the companies listed on the NSE. That means studying their financial statements, annual reports, news updates, and industry trends so as to have a better idea of their operations and future prospects. Also, consider factors such as profitability, growth potential, market competition, and management quality.
Select a Stockbroker
One cannot be able to trade on the NSE directly, as such one needs to go through a stockbroker. When choosing a stockbroker, one needs to do a comparison of brokerage fees, transaction costs, services offered, and their online trading platform, if available. For maximum returns, always go for stockbrokers with the lowest transaction costs. It is also important to ensure that the stockbroker is authorized by the Central Depository and Settlement Corporation (CDSC) and regulated by the Capital Markets Authority (CMA).
Open a CDS Account
Once you have settled on the stockbroker, you need to visit their offices to complete the account opening process. Here, you will need to provide the required documentation which includes a national ID, proof of address, and bank account details.
Fund Your Account
Once the account is open, you will be able to deposit funds into your CDS account through a bank transfer or other accepted methods. The funds will be used to purchase shares and cover transaction costs.
Place Buy Orders
Once your account is funded, you can start placing buy orders for shares. Determine the number of shares you want to buy and the price at which you are willing to purchase them. Monitor the market to identify favorable buying opportunities.
Monitor Your Portfolio
After buying shares, it is important to regularly monitor the performance of your portfolio. You can do this by staying updated on company news, market trends, and economic developments that may impact your investments.
Once you have purchased your first lot of shares, it is important to spread your investments across different sectors and companies in order to manage risk. Diversification helps protect your portfolio from significant losses if the shares of one company performs poorly.
It is important to stay informed about the happening in the economy that can have an impact on the stock market. One should also continuously educate themselves about investing in the stock market, one can do this by attend investor education programs, read financial publications, and following reputable sources for market analysis.