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Getting started in the stock market: A retail investor’s guide

NSE, Nigerian Stock Exchange, Market capitalisation
Nigerian Stock Exchange

By Lilian Olubi

If you are new to investing, you are probably asking yourself, where do I start? This is a valid question, considering the vast array of investment products available and unfamiliar financial terms that often confuse prospective investors.

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More importantly, since real money is involved, there are real consequences attached to making a wrong investment decision.

These considerations, amongst others tend to discourage prospective investors. Understanding investment options and making smart investment decisions are far easier than imagined. The average retail investor only needs to grasp a few basic guidelines and follow them as diligently as possible and as the investor’s understanding advances, so too will their level of sophistication in making investment decisions.

To get started, the first thing you should do is to determine how much your income is, make a list of your non-negotiable needs (not wants!) such as food, shelter, decent clothing, transportation, to mention a few, and then work out how much of your income you need to dedicate to these needs.

Once this is done, you should then consider putting some money aside to cover at least six months of your living expenses in an emergency savings fund. The reason is simple, life is unpredictable and having readily accessible funds in case of an emergency will go a long way in giving you peace of mind and contribute to the preservation of your investments.

After securing your emergency savings fund, you can allot a portion of your income towards buying stocks, which are also called shares. You will need to select a stockbroker with whom you will open a brokerage account. A stockbroker is a registered firm authorised to help investors buy and sell shares of companies listed on the Nigerian Stock Exchange.

A list of registered stockbrokers can easily be obtained from The Nigerian Stock Exchange website free of charge.  The process of opening a brokerage account is quite straightforward.The investor only needs to complete a set of forms requesting basic, personal information, provide identity documents, proof of residential address and evidence of income earned and an account will be opened for you. With this account, you can place an order to buy your first stock after you have funded the account. You may fund the account with a lump sum deposit or make regular deposits by setting up a direct debit order from your bank account into the brokerage account.

There are other advantages attached to having a brokerage account. For instance, you will be entitled to receive research reports and weekly stock recommendations from your stockbroker. These reports will help you understand how a target company is doing financially and should guide you inidentifying which stocks to buy.

Also, finding a great business to invest in could be as easy as looking out for the companies that make popular products. The likelihood is that there is a publicly traded company behind these products and you can be a part of their success story by buying shares in the company. However, because there are other factors to consider which may be beyond the investor’s immediate knowledge, it is always best to seek the counsel of a stockbroker or financial advisor before buying stocks.

It is pertinent to note that no matter how well you think your favorite company or brand is doing, you should not invest in just that one business. Anything could go wrong. The prudent thing to do is to invest in different companies and sectors so you can guard against unexpected downturns. This is referred to as having a diversified investment portfolio.

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The next step is to identify which companies’ shares you want to buy, place your order with your stockbroker and start growing your portfolio. This can be done by funding your brokerage account with an amount you can afford on a monthly basis and then buying additional shares in each company in your portfolio. Regular monthly investments will help you stabilize your portfolio returns against the ups and downs of the market.

Lastly, you need to monitor your stocks and assess their performance. Investing in the stock market is a long-term game, so there is no need to obsess with daily stock price movements. Investors should also avoid the urge to sell just because of a short-term dip in the stock price. That said, you should be on the look out for any new information that could have a long-term impact on the stocks in your portfolio.

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