Investing in the financial market remains to be one of the lucrative business ideas for many investors over the years. Are you looking for an investment idea that can make your money work for you? Are you too busy that you cannot venture into business, and you still want to invest in high –yield returns projects? Then, look no further since investing in shares is the way to go. This is a passive form of investment with less commitment and high returns. This article will help you understand the step to step guide on how to invest in shares of listed companies in financial markets.
Definition of shares
Shares are units of ownership that grant shareholder a right to own a fraction of company’s capital. They are also known as equities, and they enable the shareholders to have an equal claim on the company’s earnings as well as an equal obligation for the firm’s debts and losses.
Shares are divided into two categories;
• Common shares-where shareholders are entitled to share profits made by the company and they also have a right to vote at the company’s annual general meetings.
• Preference shares– where shareholders have a right to fixed periodic income but they don’t have voting rights.
Shares can be owned by an individual (single shareholder) or in the form of collective investment fund (through pooling your resources together and buying shares as a group). The fund is managed by fund managers who are experts in financial markets, and they guide the group in making the right investment decisions by selecting shares of companies that have high growth potential.
The stock exchange market provides a platform where shares of listed companies are bought and sold. In Kenya, the buying and selling of shares take place at the Nairobi Stock Exchange (NSE). All firms that list their shares on the NSE are regulated by the Capital Market Authority (CMA) to ensure investors are protected from fraud.
How can I make money by buying shares?
This is the major question that most newbie in financial markets always asks. Are you wondering how your passive investment in shares can earn you cash? The fact is there is no “rocket science” here.
The trick of making money through shares involves buying shares and holding them for a while so that they gain value. You can, therefore, sell them at higher prices than what you bought and make money. This applies when you buy shares of companies that have high growth potential, and as the company grows, your share gains more value as well. The other method of getting returns from shares is through dividends. This is where you receive part of companies’ end of year profits according to the agreed percentage multiplied by the number of your shares.
Factors to consider when buying shares
When venturing into share investment, you should always bear in mind that shares trading are risky and do not necessarily guarantee a return. There are certain market factors that influence the prices of shares of a particular company. Thus, it’s always advisable that every investor should conduct due diligence to determine the best companies to invest with either in short-term or long-term preferences.
The other form of reducing losses when trading with shares is through diversification. It involves buying shares of different companies operating in different economic sectors. Diversification will save you from incurring losses because when one industry fails and share prices lose value, you can still make some profit from other shares investment in companies operating in different economic sectors. This is popularly known as creating a portfolio.
How can one buy shares?
Once you have made up your mind to invest in shares, the next step involves buying shares from a reputable company. How is it done? Unlike any other market where a willing buyer and a willing seller negotiate and trade independently, stock exchange market has stock brokers who link buyers to the sellers of shares. They are licensed trading firms and investment banks that facilitate the trade of financial assets. They were established to eliminate fraud, and they are highly regulated to ensure investors’ money is safe. They help the investors’ trade in the stock exchange market by providing the necessary market information.
The bottom line:
Investing in shares remains an attractive venture that every individual can venture into. The initial capital is affordable, and it will guarantee you better returns in medium or long-term aspects. In case you have idle money in your bank account, this venture is the best option. Take a step and invest in shares today and let your money work for you!!!