Building Wealth One Generation To The Next: INVESTING - Part 2Sunday, March 28, 2021
Interested in building generational wealth? If you are, by now it would have dawned on you that the interest from a regular savings account is too miniscule to substantively help you achieve your financial goals, whether short-, medium-, or long-term.
For the new investor, one way to make your money earn wealth for you is by investing in the capital markets; the stock market is one such option. Perhaps you have little to no debt and you have a short-term goal to travel to a particular location in the next year or two. Dividends earned from investing in stocks could assist you with the cost of your dream vacation. Or even home repairs like purchasing a kitchen sink or installing cupboards. Let's say you're investing with an eye to starting a family, a medium-term goal. You might even be thinking longer term, over several years, such as building a nest egg for retirement. Stocks can earn great returns on your investment in the form of capital gains when the value (price) moves up, as well as from dividend income earned.
What you need to know before starting
Arm yourself with knowledge: Read up as much as you can about the stock market; ask friends or associates who are investors for insights. Use other people's intellect. It is one of the laws of wealth creation at NCB Capital Markets.
The basics: Shares represent ownership in a company; the persons who buy these shares are known as shareholders. There are various kinds of stocks/shares, but the one we're addressing here are dividend or yield stocks, the go-to stocks for investors new to the stock market who are interested in earning income (dividend or yield). These shares are offered by well-established, thriving companies listed on the Jamaica Stock Exchange the value of which will usually increase over time, affording its shareholders the ability to either sell their shares for a profit or hold them, thus adding profit over the long term. Unlike growth stocks one should not typically expect large upward price movements in the short to medium term.
Risk vs reward: Before going further, you need to understand what your risk tolerance is. Risk tolerance is your ability to endure the potential of losing money on your investment. There is always risk when investing in the stock market; there is no safe, guaranteed rate of interest as there is with a regular savings account. So, it is important to know what your aim is for doing this kind of investment. How much are you willing and comfortable with investing?
Generally speaking, the greater the risk an investor takes, the greater her reward will be. The key phrase being: generally speaking. But the stock market is sometimes quite volatile and tied to what is happening in the broader environment. You will have heard of stock market crashes, where certain stocks can lose their value almost overnight. Can you psychologically handle taking a big unrealised hit on your investment? Or are you a nervous investor who will be tempted to pull out at the first sign of trouble? Creating a realised loss.
The key thing to appreciate is that stocks can and usually will rebound. Can you remain patient and wait for this to happen, knowing that the stock could right itself, perhaps even skyrocket in a few months in a market that became bullish again. Here is where the savvy investor would trade her risk for great reward.
For nervous investors, however, who have a lower risk appetite, don't be fooled into thinking the stock market is not for you. Diversify the stocks you buy. In addition to shares from hot-shot companies which tend to be more volatile, you can buy shares of conservative well-established companies (also known as blue chips) whose yield rates may be lower but not likely to be heavily hit in the event of volatility, thus cushioning any potential losses to your investment.
Now to get started
So, you've decided to move forward with your decision to invest in the stock market. The next thing to do is find a broker. A broker is the nexus between you and the stock market. The Jamaica Stock Exchange (JSE) has several accredited brokerages that include NCB's Capital Markets. Visit the JSE's website to see which firm you want to use.
Next, you would start an investment account with the brokerage firm you choose. For NCB Cap Markets, this can be done in three easy steps on the GoIPO web portal. If you are still skittish about navigating the stock market consider opting into a unit trust fund, in which your funds are pooled with other investors' in a collective investment as a single fund managed by a fund manager and accessing a wide range of investments that include not just shares, but, depending on the fund, may even include bonds, properties and cash equivalents.
Or you could just decide to jump in with the $10,000 you have and simply make more deposits. NCB Capital Markets' equity platform will allow you to trade just one share; however, this might not be cost-effective. By continuously investing that $10,000 periodically you will have a substantial investment account before you know it. Pick a few companies to invest in. As stated before, you don't want to put all your eggs in one basket, or, in this case, one company. Your broker will advise you. Tip: Choose listed companies whose products and services are always in demand and can withstand market volatility. Also, how long have they been around? Are they expanding, opening other branches, acquiring other companies? These are indications of their profitability and, ultimately, the safety of your investment.
Finally, tell your broker what stocks you're ready to buy or self-serve through an online platform, and, just like that, you're off to the races. Say you are using NCB Capital Markets' online platform but you still have questions, not to worry, that is why we have the Wealth Hub. The Wealth Hub team is there to answer all your queries and help you navigate the capital markets and digital platforms.
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