In 2022, Austin had just completed NYSC and landed a graduate trainee role at a management consulting firm with a monthly pay of ₦300,000. However, due to the high cost of living, his monthly expenses took up the bulk of his salary and he still could not afford the things he desired. Austin kept wondering about the investment opportunities he could venture into. He discussed with a financial advisor and learned more about building wealth through the power of investing. He started by investing a fixed sum of #100,000 in stocks and money market funds monthly and by the end of 2024, the value of the stocks in his portfolio had doubled.
This is the power of investing in the stock market. Often, people talk about how investing in the stock market has enabled them to grow and multiply their wealth. Investing is also a common trait among wealthy individuals around the world. It is the ultimate key to building sustainable wealth. If you often find yourself wondering about how investing in the stock market works, you are in the right place. I will give an overview of what investing in the stock market entails.
What Exactly Is the Stock Market?
The stock market is a collection of places and mediums through which investors can buy and sell shares of publicly traded companies, that is, companies that have made their shares available to the public on a stock exchange. A stock exchange refers to a marketplace where stocks are bought and sold.
Just as marketplaces exist in different countries for buying and selling goods, each country typically has a stock exchange where shares of companies are traded and some countries have more than one stock exchange. For instance, Nigeria has the Nigerian Exchange Limited (NGX), and the United States has a total of 13 stock exchanges with the two major ones being the New York Stock Exchange (NYSE) and Nasdaq. Below are key basic terms every beginner investor needs to become acquainted with:
- Shares/Stocks:
Think of shares as pieces of a company. When you buy a share, you’re buying a small piece of ownership in that company. For example, if you own shares in MTN, you own a part of MTN and have a claim to its profits, which would be disbursed to you as dividends. - Dividend:
A dividend is your share of a company’s profits. If a company does well, it may decide to distribute some of its profits to shareholders as dividends. For example, if you own 10 shares of a company paying ₦5 per share as a dividend, you’ll receive ₦50. - Capital Gains:
This is the profit you make when you sell a stock for more than you bought it. For example, if you buy a stock at ₦100 and later sell it at ₦150, your capital gain is ₦50. Trying to acquire capital gains can be quite risky as it requires making speculations on the stock price movement. It is best to focus on long-term goals rather than short-term profits, and always have a clear strategy before buying or selling. This way, you would avoid unnecessary risks and maximise your returns over time. - Market Index:
A market index tracks the performance of a group of stocks to give a snapshot of how the market is doing. In Nigeria, the NGX All-Share Index is the main index, showing the overall performance of all companies listed on the Nigerian Exchange.
There are various benefits to investing in the stock market. It can be the biggest multiplier of wealth for you as an individual. Other benefits include:
1. Investing in stocks can serve as a hedge against inflation. Inflation erodes the value of your money over time, but stocks have the potential to grow at a rate faster than inflation. By investing in high-performing companies, your money can increase its purchasing power over the years
2. Potential for high returns: Some companies have shown remarkable growth over time, rewarding their investors with significant returns. For instance, assuming a company is currently valued at ₦30, if such a company is growing and generating revenue at a fast pace, it could signal that it would only be a matter of time before the company is valued higher. So, you buy the shares at ₦30 and wait for them to increase in value. This way, you can earn high returns on your investment.
Getting started with investing in the stock market doesn’t have to be overwhelming. As a beginner investor, it is important to educate yourself, you can also use the services of a financial advisor to ensure you make the right financial decisions. Setting financial goals could also give you direction on the right actions you need to take to achieve your goal. Furthermore, remember you don’t need a fortune to start investing. Begin with what you can afford and grow from there. Consistency is more important than the size of your initial investment.
To Wrap Up
The dynamics of investing in the stock market can be quite dependent on your location. People from around the world use different apps and platforms to invest. Therefore, you must look out for the most reliable platforms in your country and start using them to carry out your investments. In Nigeria, investment apps such as Bamboo, Chaka, Trove, Optimus, etc. make it easy for beginners to invest in both Nigerian stocks and global stocks.
It is important to note that investing comes with risks such as market volatility, stock prices can rise or fall unexpectedly due to changes in the economy, company performance, or even global events. Therefore, diversifying your investments across different sectors can help you reduce the risk involved with investing in stocks. For instance, you can allocate your investment amount across stocks in various sectors such as technology, banking, telecommunications, etc. If one sector performs poorly, the others might perform better, minimising the level of risk you are faced with.
If you want to start your investment journey this year, we are here to guide you through it! Let’s help you build sustainable wealth in 2025.
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