One common form of investment is investment in stocks. A stock represents a share of ownership in a company. It is a unit of a share of a company. Basically, when you purchase a stock, you are buying a small piece of the company which is called a share which grants you ownership of the company and makes you a shareholder.
Shares are often traded on the floor of a stock exchange. In Nigeria, the platform for trading stocks is referred to as the Nigeria Stock Exchange (NSE). It is a market for buyers and sellers to transact officially.
There are quite a number of benefits of investing in stocks. The stock market allows you to sell your stocks anytime, investors sometimes leverage on this to make more money especially those who study the market trend. They buy low and then sell high at a higher rate.
Another benefit of investing in stocks is the payment of dividends. Dividend is the distribution of a portion of the company’s earnings, decided and managed by the company’s board of directors, and paid to a class of its shareholders (Investopedia). On a simpler note, dividend means that amount paid out of a company’s earnings share of the after-tax profit of a company and distributed to its shareholders according to the number and class of shares held by them.
With the benefits associated with investing in stocks, investors or prospective investors need to be aware of how the market works. Here are five tips for beginners interested in investing in stocks:
Make sure you are in a good financial condition
Investment is good but you must make sure you have enough funds before taking up the step to invest; commitment is key. One key rule is to have little or no debt profile. You wouldn’t want to invest today and tomorrow, be looking for who to sell your stock to. Have a good plan of your income for savings, consumption and investment
Get a stockbroker
A stockbroker is a professional who buys and sells orders for stocks on behalf of clients. The next step you need to take is to get a stockbroker or a stockbroking firm and open an account with them. It is also important to ask for advice on what and what not invest in. After this, you can start instructing them to buy and sell shares.
Do your home-work
After your discussion with a stockbroker, do not be in a hurry to invest. Do your own research, check for the market trend for each proposed company you want to invest in. Basically, know what you are putting your money into.
Try as much as possible not to put all your eggs in one basket. You should understand that each company has its different revenue trend, growth patterns etc. You have to be smart while investing, never buy just one type of stock, do not invest only in a particular industry. Diversify your portfolio into different stocks
Concept of Returns and Risk
There is an inverse relationship between returns and risk while investing. The concept is quite simple. To have a higher return, you will have to buy stocks with high risks and if you get stocks with low risks, expect a lower return. However, as a smart investor, you should be aware of the risks associated with each stock while taking cognisance of the market trend.