Beginner's guide to stocks


Tuesday, May 14, 2019

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Jamaica's stock market has been getting a lot of attention in recent times, especially since international financial news outlet Bloomberg labelled it the world's best performer for 2018.

However, this news might mean very little to a lot of us.

In fact, many of us begin to shift uncomfortably in our seats whenever words like stocks, shares and equity are mentioned. To someone who is living from pay cheque to pay cheque, with just a little savings in the bank for a rainy day, the stock market might sound like a whole new world — the kind of thing high-profile business people talk about at exclusive yacht clubs.

Financial Advisor Rawlisa Sylvester says there is no need to shy away from these conversations, as the stock market provides opportunities for your money to grow instead of just sleeping in a savings account.

“Simply put, stock is the amount of capital (money) a company makes through the issuing of shares,” she explains. “When you purchase shares, it means that you are now, technically, a part-owner in the company.”

Providing an example of how money is made by trading stocks, Sylvester says: “If you buy 5,000 shares at 50 cents per share, that would mean that you spent $2,500 in total. As a company grows, so does its value. Therefore, after some time, those same 5,000 shares can be sold for $10. At that point, you would've made a profit of $47,500.”

Sylvester advises caution when deciding to purchase shares, however, because businesses don't always grow.

“With every type of investment, risk will come,” she says. “Specifically with stocks, it is highly dependent on the performance of the company you are investing in, and the economy, in general. Therefore, if the company is not performing, the dollar value will fall. Also, if the economy is going through turmoil, the value may depreciate as well.”

Despite the risks, Sylvester recommends investing in stocks as an excellent way to gain wealth.

“With just a regular savings account, the interest rate is very minimal and your money doesn't grow,” she points out. “With stocks, however, your money has the potential to grow exponentially. Even though you can lose, you can also gain a lot.”

So how do you get started?

“To invest in the stock market, one would have to open an investment account with a financial institution like Mayberry [Investments] or JMMB. You would need payslips, proof of address, TRN (tax registration number) and identification card. Additionally, they will have other forms for you to fill out,” she says.

Before you jump in, however, Sylvester advises that you research the entities in which you plan to invest, and make a decision about your investment goals.

“When you know what your investment goals are, and observe the trends in the market, you will be able to come up with an investment strategy that is tailored to you. This will depend on how much you are willing to risk,” she advises.

Sylvester recommends that you exercise prudence when starting out on the stock market, and seek the assistance of a licensed financial advisor before investing your hard-earned money in a company.

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