The stock market is the greatest wealth creation machine ever created. This is because it allows investors to own shares of very profitable companies and share the profits through dividends and growth through capital appreciation.
The Nairobi Securities Exchange is no different. Despite the recent poor performance of the Nairobi bourse, the stock market remains one of the best Asset classes that investors can use to build wealth.
If you have wondered how you can buy shares of the most profitable companies on the Nairobi Securities Exchange- Safaricom PLC, Equity Group Holdings, Kenya Commercial Bank or East African Breweries. In that case, this article is for you.
What is The Stock Market?
A stock market is a place where buying and selling of publicly traded companies takes place.
A stock represents fractional ownership of a company. Stocks are also referred to as securities or shares.
Why Invest in Stocks
There are two ways to make money when you invest in stocks. These are:
1. Dividends
According to Investopedia, a dividend is the distribution of a company’s earnings to its shareholders. When a company makes a profit, it shares some of the profits with its shareholders through dividends.
Let’s say company A made a profit of Sh100,000 and decided to give a total dividend of Ksh50,000 to its five shareholders. If the total number of shares of the company is 100, the dividends issued will be 50,000 /100, which gives Sh500 per share. If person X owns 50 shares, he will get 50*500 which is 25,000.
That’s just a simple example to show you how companies issue dividends.
2. Capital Gains
You have probably heard of the term buy low, sell high. If not, it’s the process where investors buy a particular company’s stock at a given price and only sell it at a price higher than their buying price.
For example, when Safaricom went public, one share traded at Sh0.05. As I write this, one Safaricom share is trading at Sh30. If person Y bought 1,000 shares at IPO for sh50, he could now sell them at sh30,000.
How To Buy Shares at The Nairobi Securities Exchange
1. Open a CDS Account
To trade shares at the NSE, you need a trading account that is facilitated by the Central Depository and Settlement Corporation (CDSC)
This body facilitates the holding and transferring of shares traded at the stock exchange.
Where do you open a CDS Account?
2. Choose your Stock Broker
You open a CDS account with the assistance of your stock broker. You cannot buy or sell shares directly; you need a broker to help you do so.
There are many stock brokers at the NSE, as you can see on the NSE website.
How Do You Choose The Right Stock Broker?
1. Investment Costs
Stockbrokers have fees like account maintenance fees, trading fees, brokerage fees, transaction costs and many more.
Comparing brokers is feasible to get the one who charges lower fees. If you care about your investment returns, always prioritize brokers with low costs.
On average, most brokers charge around 2% for any trade.
2. Technology
We live in an era where we can access everything on our phones. You should also access your trading account on your phone. You do not need to visit your broker’s physical offices whenever you have issues with your account.
3. Regulation
Make sure your stock broker is authorized by CDSC and regulated by Capital Markets Authority(CMA)
4. Customer Service
As a client, you want to be treated right and have a great experience in your investing journey. Prioritize brokers with an excellent public image and who have good customer reviews
Assets Traded at The Nairobi Securities Exchange
The main asset traded at the NSE is stocks; however, we also have Real Estate Investment Trusts (REITs) and a gold ETF.
How Much Money Do You Need to Invest
To invest in the Nairobi Securities Exchange, you need to trade the minimum number of shares which is 100. Thus the money you need to get started depends on the stocks you want to buy.
For example, as I write this, East African Breweries is trading at Sh 142.50 per share. That means to buy 100 shares; I would need Sh 14,250.
At the same time, Safaricom is trading at Sh29. This means I would need to raise Sh2900 to buy Safaricom shares.
Taxes
Capital gains made at the NSE are subject to a 15% withholding tax. This means when you receive your dividends, local investors will be subjected to a 5% taxation.