Investing in shares gives you part ownership or a stake in a company. If the company performs well, you could reap a percentage of the profits accrued, especially if you own a considerable amount of shares.
The decision to invest, or not, in shares is one that novice investors grapple with. You can purchase a stake in a company during an initial public offer (IPO) – where a company undertakes the maiden sale of the shares to the general public within a designated period of time.
Prospective investors usually fill in share application forms that are available from participating broker/dealers as well as authorized selling agents. Alternatively, shares of listed companies can be bought from existing shareholders via the Uganda Securities Exchange through a licensed brokerage fi rm. These firms perform this role for a commission or brokerage fee.
Just like any investment decision in other asset classes, you have to consider a number of things before you decide whether to invest your money or not.
One of the things to consider is your investment objective/s. Remember that your current financial position is critical in determining your investment objectives. For example, if you have surplus funds, you may choose to invest in shares over a long-term horizon for capital growth.
On the other hand you could be eyeing dividends at the end of the financial year. In this case, when a company makes a profit and the board of directors endorses a dividend payment, you will get a percentage of that profit. Given the amount of money at your disposal, you may decide to buy a substantial stake to be able to reap meaningful dividends. Seasoned investors in the share market don’t invest once, but continually build up their stock purchases whenever they deem fit.
The source of funding is another key issue to consider before you invest. The most prudent form of financing is from savings. However, if you decide to use debt, can you take responsibility for repayment especially when the anticipated gains from your share purchase do not materialise?
Equally important is keeping an eye on the anticipated return on your investment. This is essentially the return of the money invested, based on profits of that business. Your choice of investment should also be driven by whether you are looking at passive income or portfolio income and your level of risk appetite.