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Tuesday, 8 May 2018

Buying Quoted Shares, These Four Questions you may be useful


Buying Quoted companies shares? Why not consider these four tips before deciding. It’s a normal buyer’s thing to always carryout pre-buying research and plans before buying stocks listed in the Nigerian Stock Market. I decided to go online to search materials that have discussed about it and here is the four questions, I ended up with.



Should I Save to Invest.
The first thing to consider is if you have save enough money. In traditional economics, savings is always equal to investment. So, it’s the amount saved that would be invested. Have you save enough money already? Its improper to use your hard earn money needed for other important expenses for buying shares.

The need for savings can never be overemphasized. As a rule of thumb, 20 percent of your monthly income must be save regularly. Then, half of it should be for investment in shares or other types of investment and the remaining half should be used for emergency fund.

Emergency fund is very vital, many persons who failed to save money for emergency ended up using the money they intend for investment to settle emergency challenges. So, for a successful investment in shares, you need to save for emergency fund as you save for investment fund.

Consider why you are investing.
After saving enough money for investment in shares, you will want to ask yourself, why you are investing. Investors invest for two reasons, either for a short term basis or a long term basis.

Conventionally, investing in a short term means investing within a short period of time, at most a year. Investors in the Nigerian stock exchange involved in this, invest to make profit, known as capital gains. Many of whom are speculators, checking to know price changes in shares they are interested in before buying or selling it. Majority of persons buying shares on a short term basis are expert in stock market data.



For the long term investors, they buy shares, not mainly for capital gains but for dividend. They expect the investee company to gives good return of their investment in the form of dividend, bonus shares and right issues. These set of investors are investing on quoted shares for at least more than a year. Many investors in this category do not sell their shares. If they do, it may be to meet certain family needs. Knowledge of market data isn’t necessary.

In summary, when considering why you are investing, you should consider if you are investing on a long term or a short term basis.

Which Quoted Shares to Invest your Savings
Another important question to consider is the company's shares you should invest your money. There are majorly three types of shares, penny shares, blue chips shares and mutual fund.

Penny shares are shares of quoted companies whose shares are less than one Naira. These shares tends to rise after some years. Penny shares are not bad if you are investing on a long term basis. It is also good for low income investors. This is so, as low income investors can stock more shares volume.

Blue chips shares are shares of well known companies. Quoted companies with quality goodwill and have traded in the Nigerian  stock market for more than ten years. Most of them are in the Premium Board of the NSE. You may decide to invest in a Blue chips shares if you are buying for a long term basis. Most of the blue chips quoted companies give a large portion of their Profit After Tax to dividend.

Mutual fund is the pooling of fund by various investors. The fund is managed by a team of experts. This experts buys several investments ranging from shares to bonds. At the end of the year, the profit made are shared to the investors according to their volume of shares. Many banks operate a mutual fund for their customers interested in investing. There are also private institutions that operates mutual funds.

Buying on a short term basis, then Blue chips shares are just right for you. This shares are mostly brought in the NSE, so, the shares can easily and readily sold out on the flour of the Exchange. Their prices easily fluctuate making it possible for easy speculation and capital gains. However, mutual fund will be better. This allows a team of expert in investment portfolio to manage your investment. At the end of the year you receive share of profit base on your volume of shares.

Mixing the Investment.
Ask any expert in the stock market. The best advise you get is the need to diversify your investment. No serious investor scale for a long time by investing on a single quoted company shares. Buying at least two listed companies shares will help mitigate risk.

Investing in shares is a risky venture. That is why in the first place, there is regulation. Also, you can’t tell when a listed company will liquidate, I mean, stop doing business. So, diversification becomes not only necessary but important.

You may start out with a single quoted company shares but as time passes by, it becomes necessary to add a second listed company share and a third. This form your portfolio of investment in shares. If you have the means, it isn’t wrong to diversify immediately.

In diversifying, you may consider mixture of penny shares and blue chips shares. Some investors may prefer all round blue chips shares, still, others may prefer only penny shares.



Conclusion
Buying shares in the Nigerian stock market should be done not in a hurry. Consider saving to invest, why you are investing, the quoted shares to invest and your investment mix before starting out.

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