Understanding the Basics
Developing a personalized investment strategy that will help you pursue your goals means considering a number of choices. When starting out, it’s important to ask yourself some basic questions:
- What am I investing for and how quickly do i plan on using the funds?
- How involved will I be in managing my stocks?
- How much risk am I comfortable with?
By asking yourself these simple questions you’ll be able to start narrowing down all of the available choices and select the one that will help you pursue your goals.
Start with a Strategy
Before you start trading, it’s critical to create and commit to a strategy. Without a strategy and the discipline to stick to it, make no mistake: you will fail.
Having a clear goal, then tracking your progress toward it, is essential to successful investing. A strategy therefore has two parts:
1. Identifying the mix and characteristics of the investments you want to trade.
2. Determining the process of managing those investments, including exit points and rebalancing.
The first step in shaping your strategy is simply to “know thyself.” You must consider your specific behaviour and your intended investment portfolio in order to know when and why you’re trading. Again: If you don’t do this, you will fail. To create your strategy, follow these steps:
- Know your goal. Start by asking yourself: Are you trying to save for a new car, your retirement, a child’s education, or simply to accumulate as much wealth as you can? Each of these will result in a different strategy, because each has its own unique characteristics—differing timeframes and differences in the degree of acceptable risk, for example. And these unique characteristics will produce a different portfolio. So you need to know whether you’re investing for the long term or trading for the short term.
- Set targets. Before you enter a trade, set realistic profit targets and risk/reward ratios. What is the minimum risk/reward you will accept? How much of your portfolio should you risk on any one trade? Set profit goals—in naira or as a percentage of your portfolio—and evaluate them regularly.
- Choose an exit point. Your strategy must include an exit plan. Don’t just know your buy signals—know where to exit. Know how much of a loss are you willing to take, and stick to the plan. Don’t stay put because you’re down and don’t want to take a loss. Are you watching something that you know is happening in three days? Then confine your trading to that timeframe and event—don’t stick around in the position afterward, becoming an inadvertent long-term investor and taking a loss. Limiting losses is a key part of ending up by making a profit.
Just as your goals will—and just like the markets do—your trading plan should evolve and change. Evaluate it regularly, and make sure it reflects your goals and your trading style.
how involved will I be in managing my Stocks?
Thankfully, investing no longer has to be a head-scratcher. At NSL, we understand time is money and that your vision for the future may be a work in progress. So we set out to create an easy-to-use investing platform that recognizes and embraces your values and, most importantly, You.
Investing can be confusing and intimidating. When you consider the countless other things you could spend your time and money on, it’s a no brainer why people aren’t investing like older generations. It doesn’t mean you don’t care about your future, it just means preparing for retirement may not be the most important decision on your plate at the moment.
We are here to educate and empower you to know your worth – all of it.
Stocks: The Basics
What are Stocks?
Also known as shares or equity, a stock is a type of security that signifies ownership in a corporation and represents a claim on part of the corporation’s assets and earnings. Today, millions of people in Nigeria own stock in publicly traded companies.
The value of a stock depends on whether its shareholders want to hold it or sell it, and on how much other investors are willing to pay for it. For example, if a company is doing well or investors have confidence in the company’s future, the stock’s value may go up. Not all stocks are fairly valued. Some stocks sell for less than analysts think they are worth and therefore are undervalued, while others are overvalued.
Benefits of Investing in Stocks
Investors see a capital gain as the stocks in which they invest rise in its value. Investors can also profit by receiving dividends, which is the portion of a corporation’s earnings that is paid to stockholders.
The Risk of Investing in Stocks
Investment products are ruled by the risk reward trade off. Banks can get away with offering a low interest rate to savings account holders, since the money is guaranteed to be safe. Stock investing, on the other hand, can potentially deliver much higher returns because they are a riskier investment. Shares in a company can depreciate and lose value if the company is poorly managed, underperforms, or the stock simply draws no interest from investors. Some stocks are riskier than others.
A typical Investor would usually buy stocks through a traditional brokerage firm. Also known as broker/dealers, these are investment firms that are licensed to buy and sell securities by regulatory authorities e.g. Securities and Exchange Commission (SEC), The Nigerian Stock Exchange (NSE). Regular market hours are 10:30 a.m. to 2.30 p.m every working day.