By Dantagos Jimmy-Melani, Ndapunikwa Investments. Photo: www.moneysavingmadness.com
It may surprise some to learn that shares, also known as equity, are a part of nearly every investment product sold to individuals and companies wishing to grow their savings in Namibia. During the last 12 months (ending May 2015) an investment into the locally listed companies on the Namibian Stock Exchange (NSX) resulted in a 31.55% return on investment, as measured by the NSX Local Index. This means that an amount of N$1000.00 invested, would have grown to N$1315.50 over the period.
These numbers make the buying and selling of shares one of the greatest tools ever invented for building wealth. However, before starting on the road to financial freedom, one needs to have a solid understanding of what shares are and how they trade in the market. Shares can (and do) create wealth for investors, but they also carry the risk of major losses.
The key to protecting yourself in the equity market is to understand where you are putting your money. The purpose of this piece is therefore to provide the foundation you need to make investment decisions about shares. We will start by explaining what a share is, how shares are traded, and finally, how you can buy and sell shares for yourself.
Simply put, a share, also known as equity, gives you as an investor a part in t
he ownership of a company. Shares represent a claim on the company's assets and earnings. As you acquire more shares, your ownership in the company increases. As one of the many owners or shareholders of a company, you have a claim (albeit usually very small) to everything the company owns. You are also entitled to your share of the company's profits, usually distributed via dividends, as well as any voting rights attached to the share.
Most shares are traded on stock exchanges, which are places where buyers and sellers meet and decide on a price. The purpose of a stock market is to facilitate the exchange of shares and other securities between buyers and sellers, thereby reducing the risks of investing.
In Namibia the trading of shares takes place on the Namibian Stock Exchange, and must be executed via a registered stockbroker, an agent who facilitate the trading of shares. Therefore, in order to invest in shares directly, an individual or company must approach a stockbroker registered with the Namibian Stock Exchange and instruct the stockbroker to buy and sell shares on their client account.
You can also invest in shares by approaching an investment management company or other financial services provider, offering savings products that include shares as an investment vehicle. These firms usually have a range of products for individuals and companies to choose from, which comply with all the relevant regulations.
When choosing such an investment product it is wise to receive professional financial advice in order to determine your appetite for risky investments, the portion of your budget that can be allocated to investment savings, your investment return objectives, and the time period over which you wish to invest before you need your money back.
It must be emphasized that there are no guarantees when it comes to individual shares. Some companies pay out dividends, others do not. Even if a company does not pay dividends, an investor can make money when there is an increase in the share value. Companies issuing shares to the public can also go bankrupt, in which case your investment may be worth nothing. So investment in shares is usually not advisable for the overly conservative person, who requires assurances and guarantees. But for those who have the stomach for risk, shares may just be the right place to start building your financial future.
Buy and Sell photo: bizenglish.adaderana.lk
Share Trading photo: scaffold.com