Investing in the stock market can be a great way to grow your wealth over time. It is probably one of the best financial decisions for wealth growth. Whether you are young, old, rich or in whichever status, it does not matter.
The goal is to grow rich and achieve financial stability, and financial freedom, with as much ease as possible. Any financial book will tell you that investing is a sure path to financial growth.
Understanding the stock market, money and investing is a crucial part of growing wealth. Although it is important to save money, it loses value over time. The only way to beat inflation is through investments.
The Kenya Stock Market, managed by the Nairobi Securities Exchange (NSE), offers numerous opportunities for investors. This guide will help you navigate the steps necessary to start investing in the Kenya Stock Market, understand the various types of investments available, and make informed decisions.
Understanding the Kenya Stock Market
The Kenya Stock Market is a platform where shares of publicly traded companies are bought and sold. Nairobi Securities Exchange (NSE) established in 1954, is the primary exchange in Kenya. The NSE plays a crucial role in the Kenyan economy by providing companies with a platform to raise capital and investors with opportunities to build wealth.
Key Players and Components:
- Publicly Traded Companies: These are companies that have listed their shares on the NSE.
- Investors: Individuals or institutions that buy and sell shares.
- Stockbrokers: Licensed professionals who facilitate the buying and selling of shares on behalf of investors.
- Central Depository System (CDS): An electronic system that holds and manages the securities owned by investors.
Getting Started
The Stock Market can be frustrating and tedious when getting started if you do not know where to get started. Especially without the help of a seasoned trader, or stockbroker or a lot of online research and a few scams.
In this article, I aim to give you a fast and easy way to get started without much hustle and pain.
Here are a few steps:
Educate Yourself
Before diving into the stock market, it’s essential to educate yourself about basic financial concepts and market terminologies. Some recommended resources include:
- Books: “The Intelligent Investor” by Benjamin Graham, “Rich Dad Poor Dad” by Robert Kiyosaki.
- Online Courses: Platforms like Coursera, Udemy, and Khan Academy offer courses on investing and finance.
- Seminars and Workshops: Attend seminars and workshops on investing and financial planning.
Setting Financial Goals
Having clear financial goals is crucial for successful investing. Determine what you want to achieve with your investments. Goals can be short-term (e.g., buying a car), medium-term (e.g., buying a house), or long-term (e.g., retirement planning). Define your goals and the time frame for achieving them to create a focused investment strategy.
Creating a Budget
Create a budget that allocates a portion of your income to investments. Diversifying your investment portfolio is vital to mitigate risks. Don’t put all your money into a single stock; spread your investments across different asset classes and sectors.
How to Invest in the Stock Market
Well, as much as the idea of investing is appealing, there is a lot to consider and the proper investment to make. The decision made in where to invest and the investment plan one chooses to make as much impact, as they can reduce the risk factor and increase the reward, generating more wealth.
Types of Investments
If you plan on investing, several options exist, and that would depend solely on the investor. Although some investments are riskier than others, the same investments also offer great returns. Some of these options include; stocks, real estate, bonds, mutual funds, exchange-traded funds(EFTs), commodities, options, precious metals, etc.
Stocks
- Blue-Chip Stocks: Shares of well-established companies with a history of stable earnings and dividends.
- Growth Stocks: Shares of companies expected to grow at an above-average rate compared to others.
- Dividend Stocks: Shares that pay regular dividends to shareholders.
Bonds
- Government and corporate bonds offer fixed interest returns over a specified period.
- Bonds are considered less risky than stocks and provide a steady income stream.
Mutual Funds and ETFs
- Mutual Funds: Pooled investment funds managed by professional fund managers.
- ETFs (Exchange-Traded Funds): Similar to mutual funds but traded on the stock exchange like individual stocks.
These funds offer diversification and professional management.
Investing in the Kenya National Securities Exchange (NSE)
Today, we are going to be looking into investing in stocks. Investing in stocks in simple plain terms means buying ownership or part ownership in a publicly traded company. These shares are called stocks. The goal of this investment is to buy the stocks in the hopes that the company, makes profits and pays dividends or the company’s stock grow in value and thus your stock becomes more valuable. Although I say hope, I do not mean that this is a game of luck, but it is a game of chance as there are risks involved. The easiest way to get started to trade in stocks is through a brokerage account.
Let’s look at how to get started in trading stocks in Kenya. Note that this might as well apply to many other regions as the processes are quite similar.
Step 1: Opening a CDS account
A Central Depository System (CDS) account is necessary for holding and trading shares electronically. Opening a CDS account is an easy process that does not require much. The process involves filling in the CDS 1 form, and submitting your ID, KRA PIN and proof of residence. After which your account is opened and you can move to the next step.
Follow these steps to open a CDS account:
- Choose a registered stockbroker or investment bank.
- Complete the CDS account application form.
- Provide required documentation (ID, passport-sized photo, KRA PIN, proof of address).
- Apply and wait for approval.
CDSC (Central Depository and Settlement Corporation) deals with settling your shares and keeping the contracts of purchase and so forth, in short, this is the equivalent of a bank account for Stocks, bonds and such.
Step 2: Choosing a Stock Broker
Choosing a stock broker is a personal choice and depends on the client’s needs and the type of service you expect, it may include; customer support, client relations, mode of trading, website and app UI and their availability, charges incurred for maintenance and commissions taken when purchasing shares and so forth.
The stock brokers certified and regulated by the Capital Markets Authority in Kenya are listed on the NSE website. There are about 16 of them and are categorized depending on the modes that are available, either online or through mobile apps.
Here is why I advise starting with the second step…..
Most of the brokers are always looking for new clients. Since most of them know the ins and outs of the stock trading world, they make it easy for their clients to get started. Thus all you have to do is fill in the forms and submit them, and they handle the rest. They will get back to you with your CDS account and your trading account mostly within 1-2 working days. No hustle.
Here are a few brokers that you might want to look at:
- EFG Hermes One
- Genghis Capital (not as cost friendly)
- AIB AXYS
Step 3: Research on Shares and Stock to Invest in
Do your research, this is always one of the best advice anyone will ever give you in trading either stocks, forex or crypto and it is always true. Do not be taken into the fuss of purchasing something you are not convinced about, always do extensive and comprehensive research. Always know that investment goals from one investor to the next vary and it is important to stick to yours.
There are several places that I would advise you to do your research from:
- MyStocks App
- Investing.com
- Official Statements and Book newsletters from the companies.
- NSE official app
- Stock brokers newsletter for information and Investment advice
These are some of my favourites and I have found them reliable and informative for all my purchases.
Step 4: Deposit and Make a purchase
Fund your account and make a purchase. The information for funding your accounts is provided by your stock broker, and most in the region will accept payment through mobile transfer (Mpesa) and bank transfer.
Step 5: Your First Trade in the Stock Market
To buy and sell stocks, you need to place orders through your stockbroker.
There are different types of orders:
- Market Order: Buying or selling at the current market price.
- Limit Order: Specifying the maximum price you’re willing to pay or the minimum price you’re willing to accept.
Be aware of trading fees and commissions charged by your broker.
Step 6: Monitoring Your Investments
Regularly review your investment portfolio to ensure it aligns with your financial goals. Utilize tools and resources such as financial news websites, stock market apps, and analyst reports to track stock performance.
When to Buy, Hold, or Sell:
- Buy: When you find undervalued stocks or during market dips.
- Hold: When the stock continues to perform well, and you have a long-term investment horizon.
- Sell: When the stock reaches your target price or if the company’s fundamentals deteriorate.
Step 7: Risks and Challenges
Investing in the stock market comes with risks. Some common risks include market volatility, economic downturns, and company-specific issues.
Mitigate risks by:
- Diversifying your portfolio.
- Keeping informed about market trends and news.
- Avoiding emotional decision-making.
Finally
Investing in the Kenya Stock Market can be a rewarding journey if approached with the right knowledge and strategies. Remember to set clear financial goals, educate yourself, choose a reliable stockbroker, and regularly monitor your investments. Start your investment journey with caution, proper research, and a long-term perspective.
As a parting advice, always trade and invest in companies that spark your interest or that are directly aligned with your interests. Such a habit gives you control and insight in your research and you look for where to invest. As an example, if you are interested in trading in stocks of a certain bank, being a customer you get to understand the customer service, the company’s services, policies and other factors that could affect the company’s performance.
Welcome to the trader’s ring and investors’ corner.
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