Investing in stocks is one of the most powerful ways to generate passive income and grow wealth over time. Some of the world’s wealthiest billionaires, like Carl Icahn and Warren Buffet, have made a considerable fortune in the stock market. The Nairobi Securities Exchange (NSE) offers a marketplace where you can purchase or sell shares of Kenyan publicly listed companies like Safaricom Plc, KCB Group, and KenGen Plc.
This article provides a clear step-by-step guide on how to buy shares in Kenya. Whether you have Ksh 1 million set aside or you want to invest Ksh5,000 every month, let’s get started. But first, let’s explore some benefits of investing in the stock market.
Why Buy Shares?
Dividends income
Owning stocks comes with the opportunity to receive dividends that increase your income. A dividend refers to the earnings a company distributes to the shareholders regularly, often quarterly. To put it simply, it is the money you receive when the company generates a profit. Dividends can help you to grow your investment portfolio or fund your retirement.
Investment gains
Another significant benefit of investing in stocks is the chance to grow your money as the value of the stock market increases. The tip is to buy the stock of a particular company when the price is low and sell it at a higher price.
For instance, if a company’s stock sells at Ksh20, you buy 1,000 shares worth 20,000. After one year, the share price rises to Ksh35. That means you can now sell the shares at Ksh35,000.
Related: Top Investment Opportunities in Kenya
Benefit of Compounding
You’ve probably heard of the power of compounding. The stock market affords you the opportunity to tap into the power of compounding. You can reinvest dividends and capital gains to get additional earnings from that money.
Let’s say you buy Ksh100,000 worth of shares. In the first year, the investment appreciates by 10 %, giving you a gain of Ksh10,000. If you collected the Ksh10,000 profit every year for 20 years, you’d have accumulated Ksh200,000. However, if you reinvest your earnings, the 10% annualized return would grow to Ksh632,807.36 after the same period.
Protecting your purchase power
Inflation reduces purchasing power since the fixed amount of money becomes progressively less valuable. Investing in stocks protects you against inflation in two ways.
- Rising income
- Investment gains
5-Step Guide on How to Buy Shares in Kenya
Step 1: Pick a Licensed Stock Broker
To buy shares in Kenya, you first need to choose a licensed stockbroker. Remember, you cannot trade shares directly. You need a stockbroker to do so. The broker will assist you to open a CDS account. Also, a good stockbroker will provide the resources and tools you need to make effective investment decisions.
Make sure your broker is licensed to avoid losing your hard-earned money. NSE offers a list of licensed brokers that facilitate online trading or mobile trading.
Step 2: Open a CDS account
The next step is to open the Central Depository System (CDS) account. It’s mandatory to have a CDS account to trade shares in the NSE. The CDS account simply holds your shares and facilitates the transfer of shares upon sale or purchase. You can open your CDS account via an investment bank or a stockbroker authorized by the CDSC.
To open a CDS in Kenya, you must provide the following items.
- Two passport-size photographs
- Passport or national identity card (original and photocopy)
- Certificate of incorporation (for companies)
- KRA pin
- Bank Account details
Step 3. Fund your Account
Once you’ve chosen your broker and the CDS is set, you now need to fund your account. And this simply involves depositing money required to pay for your investments. The most common way to do this is to transfer funds from your bank account. But many brokers are now M-pesa transfer.
Step 4: Analyze and Pick Your Stocks
The next step is to pick the stocks you wish to invest. Choosing the best stocks isn’t an easy task, even for experienced investors. You must research and analyze the NSE-listed companies. Key things to watch include earnings (profitability), earnings per share, PEG ratio, book value, and free cash flow.
As a beginner, aim for slow and steady growth. Don’t be rash and fall into the temptation to invest in risk stocks. Diversification is an effective technique for reducing the risk of experiencing massive losses.
Step 5: Place an order
Once you’ve identified the best stocks to put your money order, you can now place your order for your purchase. Specify the number of shares you want to buy. You can only buy 100 shares and above. Thus, ensure your account has enough funds to pay for 100 shares of your preferred company.
Step 6: Monitor and Review
Lastly, you’ll need to regularly monitor and review your stocks. Stay updated with the market trends and stock performance. This allows you to keep track of your risk tolerance and adjust your goals.
