Introduction
Are you thinking of investing in Nigeria’s stock market? If yes, this article is perfect for you. The Nigerian Stock Exchange (NSE) offers you the opportunity to participate in one of Africa’s largest economies and make money to help grow your wealth. Whether you’re a major investor or just have little money, the NSE offers numerous investment opportunities.
Getting started in the stock market can be a daunting process for many. However, you can acquire stocks and become a shareholder of companies listed on the NSE.
Here’s how to invest in the Nigerian Stock Exchange and some tips for successful investing.
Understanding the Nigerian Stock Exchange
The Nigerian Stock Exchange, currently known as the Nigerian Exchange Group, is the leading exchange based in Lagos, Nigeria. The Exchange offers companies access to capital from domestic and foreign investors. In 2022, NSE had a total of 173 listed companies.
Regarding market performance, the Exchange has recorded remarkable growth in the past few years. In 2023, NGX reported a remarkable growth of 45.9%. The stock market has also witnessed an unprecedented surge in buying interest. The stellar performances come despite the multiple macroeconomic challenges facing the nation.
Related: How to Buy Shares in Kenya
Benefits of investing in stocks
Investing in stocks comes with multiple benefits. Here are the big ones;
Dividend benefits
The most significant benefit of investing in the NGX is the potential to earn an income from dividends paid by companies in your portfolio. You’ll receive a dividend payment even if the stock’s value declines. Dividend payments can help you grow your portfolio or fund your retirement plan.
Capital gains
When you invest in the Nigerian Exchange, you get the opportunity to earn money if the stock market increases in value. However, you’ve to invest in stable companies to enjoy profit growth.
Protection against inflation
The returns you’ll get from the stock market can outpace the inflation rate. Thus, investing in stocks is an outstanding way to hedge your wealth against inflation.
High liquidity
Stocks on the NGX are traded publicly. Thus, you can quickly buy or sell them. This makes stocks a more liquid asset compared to alternative options like real estate.
8-step Guide on How to Invest in the Nigerian Stock Exchange
Step 1: Pick a Stockbroker
The initial step in investing in the Nigerian stock exchange is to appoint a stockbroker. The stockbroker is an authorized agent who buys or sells stocks on your behalf in return for a fee or commission. In the Nigerian Exchange context, the stockbroker facilitates account opening.
Nigeria currently has over 100 active firms that offer brokerage services to investors. When choosing a stockbroker, it’s essential to consider factors like commission, reputation, customer service, and trading platform. Look out for the stockbroker’s status, whether active or inactive, on the NGX website before making your choice.
It’s crucial to choose a stock broker that offers research tools such as company reports and real-time market data.
Step 2: Open a Central Securities Clearing System (CSCS) account
Once you’ve appointed a stockbroker, you’ll open a CSCS account. The stockbroker facilitates account opening. The account serves as the gateway to the NSE.
To open the account, you must submit documents to help the stockbroker verify your Know-Your-Client (KYC) details. Documents that you’ll need include:
- Means of identification, such as National ID or Driver’s License
- Details of your bank account
- Passport-size photos
- Electronic signatures
Some stockbrokers like Stanbic IBTC and FBNQuest offer online trading platforms that make this step easy. With these apps, you can easily open a brokerage account from your mobile phone. It will take less than 48 hours to have your details verified.
Step 3: Determine How Much Money to Invest
The next step in your investment process is pinpointing the amount of money you wish to invest. This step requires a comprehensive assessment of your finances. Start by assessing your income and then checking your budget.
According to experts, your investment amount should be around 10-20% of all your income. Remember to always invest money you can actually afford to lose.
Read More: The 50/30/20 Budget Rule
Step 4: Fund Your Stock Account
By this step, you’ve opened a CSCS account through the brokerage firm. Now, you’ll need to fund the account. Transferring funds to your account is usually straightforward.
The stockbroker provides different methods to fund your account, including check deports, wire transfers, USSD, and card payments. You’ll choose the most convenient method for you.
Step 5: Pick Your Preferred Stocks
The Nigerian Exchange provides you with an array of publicly traded companies’ stocks. But not all stocks perform well. Therefore, you must make well-thought-out decisions when picking your stocks. As a beginner, you should look for stable stocks with high growth potential.
Blue chip stocks, dividend stocks, and defensive stocks offer solid bets for beginners. Limit your investment to a few stocks when starting. As your experience increases, you can look for funds and expand your portfolio.
Step 6: Place an order
Once you’ve picked your stocks, it’s now time to place an order to buy stocks. This is perhaps the easiest step in investing in the NSE. Essentially, placing an order involves specifying the number of shares you want to buy or sell and the specific time for the trade execution.
Your stockbroker receives the order and executes the trade for you. And that’s it. Always remember to be accurate with your order. Ensure you receive a trade alert to confirm the broker successfully executed your order.
Step 7: Monitor your Investment
Upon the execution of your order, you must now monitor your stocks each passing day. The goal is to check the performance of your stocks and make appropriate adjustments as needed.
Take this step as an opportunity to gain new strategies and tips to improve your experience. Stay up-to-date with companies you’ve invested in, industry trends, and the global economy.
Step 8: Withdrawing your earnings
When you receive benefits for your investment, you can opt to reinvest or withdraw your profits. The process of withdrawing funds is now easy with online trading apps. To withdraw your funds, head to your broker’s website or app and hit the withdrawal option. Remember, you’ll receive funds via the bank account you shared during the registration process.
Frequently Asked Questions (FAQs)
What is the minimum amount of money do I need to invest the Nigerian Stocks Exchange?
The minimum amount you’ll need to start investing in the NSE depends on the quantity and price of the shares you’re interested in buying. You only need as little as N10,000 to start off your investment journey.
What are the best industries in Nigeria to invest in?
Some of the best industries with high potential in Nigeria include technology, oil and gas, the banking and financial sector, real estate, and agriculture. But don’t be overconfident in your choices. Always conduct a thorough stock market analysis before settling on a specific industry for your investment.
Tax
The dividend payments paid to local investors are subjected to a 10% withholding tax to be deducted at the source before remittance to shareholders.
