In its simplest form, investing is putting money, time and effort into something in the hopes of making a profit or earning and income. The stock market is a place where shares of a company can be bought and sold by the general public. Each share that is bought and sold represents part ownership in the business. Investors make money through the capital appreciation of the shares or dividends.
Capital appreciation refers to the gradual increase in the value of a share. For example, if an investor buys a share at N$50 today and that same
share costs N$100 three years later, there has been a capital appreciation in the share’s value. Should this investor sell at a higher price they will realise the profit of holding that share. Dividends are periodic payments made to investors as a “reward” for holding the company’s shares.
Investing in the stock market for most people comes with a lot of apprehensions, the main driver of this hesitation being fear. Fear of losing money or making mistakes is a significant obstacle for new investors. The image most people have of investing is either a get rich quick scheme or losing all their money in
one day. This is not what investing is about, investing is about protecting your assets and steadily growing them over time.
“Overtime” is the most important takeaway, investors are in the market for the long term, they are not there to gamble over small price movements
and are not shaken when share prices start to fall. So how do we overcome this fear- based hesitation and move forward towards wealth creation? How do we
work towards understanding and not fear what we do not yet understand?
You do not need to become an investment expert but you need to understand the basics. The biggest investment you can make is towards
your overall understanding of how markets work. There are a few basic concepts that every new investor must take time to understand such as diversification, compounding, inflation, asset classes and the relationship between risk and return. When you are educated on the market, as well as the stocks within
it, and learn what to watch for, you will gain an understanding of when to buy and sell. You will feel much more comfortable making decisions and should become more confident with the choices you make.
Many new investors are risk- averse; this means they are scared to lose money. Truth is even experienced investors lose money, so start with small amounts every month so you don’t risk too much while you are still learning. Once you get comfortable, investing larger sums of money will become easier, this way you will learn with experience how to balance risk and return.
Begin with the end in mind
Set goals and create an investment plan to help guide you. Saying you want to make money isn’t good enough, no one sets out to lose money. You
need to be more specific. An investment plan is a map to help get you to your financial goals, it helps set the destination and the route to be taken.
Goals can be short term or long term and each goal should have its investment vehicle and strategy depending on the time horizon. Setting goals is important because time is a crucial element in the stock market.
Keep it simple
When your investment approach is simple, you are less likely to become overwhelmed. In addition, the easier your plan, the easier it will be to execute, spot issues, and make adjustments. Likewise, any investment you choose should fit into your plan. If it doesn’t move you closer to your goal, or if you’re not comfortable with the level of risk, walk away. Renowned investor Warren Buffett often preaches that investors should stick to what they understand. He calls this the “circle of competence.” Simply put, if you don’t fully understand what a company does, how it makes money, or the market it’s in, then it’s probably not
a wise investment.
Remember, everyone has to start somewhere, even the most accomplished investors continue to learn and sharpen their skills. There is always room for improvement, and the real measure of progress is how much you have improved over time. With the above in mind, one must always seek the guidance and advice of an investment professional such as a stockbroker or certified financial planner when considering to invest.
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