In the famous words of Warren Buffett, “The stock market is a tool for transferring wealth from the impatient to the patient.”
How Much Money Do We Need to Invest in The Stock Market?
We’ll come to that in a moment.
Let’s first get ourselves up to speed with the basics. Shares are an ownership in a company and the stock market is where the ownership changes hands.
A stockbroker is the intermediary who makes the transactions possible and they earn a small commission for their services.
As a shareholder (owner), you’re entitled to a share of the company’s profits/losses.
As well as taking part in crucial decisions involving the daily management of the company. Simply put, expressing yourself and what you believe in.
The Nairobi Securities Exchange is an avenue where investors can exchange securities, such as stocks and bonds.
And for you to trade in stocks, you’ll need to open a CDSC account with a CMA-regulated broker.
I use AIB AXYS whom have been reliable and offer exceptional support.
However, before hopping into the
investing world, please set the foundation right for your money castle to stand
on, firm and tall.
1. Build An Emergency Fund
Pulling money out of your investments to put out financial fires is not a wise idea.
We need to put measures in place to avoid such instances, as your invested money is the VIP running the show and you don’t want him distracted.
The longer every dollar stays invested, the harder it labours for you and the higher the returns.
Therefore, begin by setting up a six-months worth of expenses for an emergency fund to keep you afloat in case a financial disaster strikes.
2. Set Your Investment Goals
Now that we’re done setting up our emergency fund, what’s left is defining our investment goals.
Why do we want to invest? Is it our mini-retirement fund that we're creating? Is it for kids’ college? Or is it for your honeymoon?
By setting investment goals, we give ourselves a purpose and a number to shoot for at the same time.
This keeps you motivated, as you keep track of your progress.
3. Open CDSC Account.
Now that you’ve got an emergency fund and investment goals defined, it’s time to swim in.
Choose a stockbroker and open a brokerage account with them.
A CDSC account is like a bank account that will facilitate the buying and selling of shares.
The ideal broker should have exceptional customer service, an online presence, and standby support when need be.
My broker is AIB AXYS Africa and I highly recommend them. You can entirely open your shares account online with them and no paperwork is needed.
4. Research The Company to Buy.
Now that you’ve opened a CDSC account, what’s left is deciding on which shares to buy.
This is a straightforward task as it intermarries with your investment goals set earlier.
For example, I’d like to pay for my daughter’s school fees entirely from dividend income.
Therefore, I’ll require Ksh 40,000 in dividends every year. To achieve this, I need to own:
A stable company, with a good
dividend yield.
This information is readily available in the listed company's financial statements.
And by devoting 30 minutes of
your time, you can learn about industry trends and areas the companies are
growing in or declining among others.
This will give you a snapshot of what the company's future may look like.
How Much Money Do You Really Need to Buy Shares?
Many people believe they need sizeable sums of money to invest in the stock market, and they couldn’t be further from the truth.
At the Nairobi Securities Exchange(NSE), you can buy shares in batches of 100 or use the odd slot for shares between 1 and 99.
However, settlements in odd slots seem to take longer due to low supply/demand.
You’ll also incur an additional 2% brokerage fee charge for every settlement. Before you click away, let’s do the math.
For example, to buy 100 KCB shares on 22/5/2023, you’ll require
30*100= Ksh 3,000. Plus 2% brokerage fees, 2%*3000= Ksh 60.
Totaling to KSHS 3,060.
You can as well buy 1 BAT Share using the odd slot at Ksh 475 plus brokerage fees of Ksh 9.5 totalling Ksh 484.5. As you can see, with as little as
Ksh 500, you can be a proud shareholder.
What Are The Benefits Of Shares?
Owning shares in Kenya comes with benefits such as taking part in company decisions, such as voting for directors thus taking part in their management.
Excellent companies pay part of their profits as dividends to shareholders and hence can be a significant source of passive income.
In case of share splits, you’ll end up owning more shares in the company, hence increasing your future earning potential.
Finally, shares are transferrable assets hence they can be used as a store of wealth for your future generation.
Dollar Cost Averaging Investment Strategy
30 years from now, the market will be there. Will you? This is a humbling question to day traders and everyone trying to make a quick buck out of the stock market.
Dollar Cost Averaging is making regular purchases of shares at regular intervals, e.g. Monthly, and since the market keeps fluctuating, the average price will even out over time without you stressing over it.
Buy companies that fit your investment goals and sell when you reach those goals or their fundamentals change.
FAQ About Shares
What is the Minimum amount to buy shares in Kenya?
The minimum investment depends on the shares and the company. Different companies, retail at different prices.
For example, with Ksh 1000, you can afford 2 BAT shares and with Ksh 1,100 you can afford 100 ABSA shares.
Which is the best company to buy shares in Kenya?
The best company to buy depends on your investment goals. However, the market will present you with bargain buys all the time.
All you’ve to do is to be prepared to take advantage when such opportunities strike.
To find brilliant companies, dig deeper into their financial statements, as cash flow is the bloodline of every business.
Look into industry leaders as you’re scouting for your next investment as they form the benchmark. In Theory, we need to find bargain companies that are exceptionally cheap.
In Conclusion
You do not require large amounts of money to get started in stock market investing in Kenya.
- Set Up your emergency fund.
- Have investment goals in place to keep you in check.
- Open a CDSC account with a regulated broker.
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