8 Practical tips for young stock market investors

By Adolf Muchiri

Contrary to popular opinion that young people prefer to spend rather than save and invest, a recent survey by Enwealth Financial Services found that 41 per cent of millennials actually prioritize saving by investing their money in property and real estate while others put money in retirement benefit schemes and other financial instruments.

Notably, very few young Kenyans invest in the stock market.  A majority of them have  reasonable concerns for not investing in stocks from “I fear losing money to bad investments”, “I do not have enough money required to invest”, “I do not have someone I can trust to guide me and help me invest” to “I do not know how to get started”.

The Nairobi Securities Exchange (NSE) allows everybody an opportunity to own a piece of any of the listed companies and see the value of the investment increase over time.

If you are looking into becoming a risk-averse millennial investor, experience has shown that going about it carefully and following expert advice when investing in the stock market can pay off. Here are eight tips on how to be savvy about stock investing without getting burned.

  1. Make an informed decision

If you are absolutely green to investing, proper research should always be undertaken before investing in stocks. Most people have only heard of stocks and bonds, but as a new investor you will encounter a handful of terminologies associated with investments. Understanding these terms enables you to be more confident when researching on potential investments.

  1. Know:

Know what is a holding? What is a portfolio? What is an investment allocation? What is a mutual fund? What is an asset class? Among others. You can easily get such information by reading some basic financial assistance books, articles or taking short courses. Even if you do not plan on personally managing your individual investments, it pays to know the details about the most common types of investment instruments.

  1. Find a mentor

Once you have a nice nest egg started, you should have a mentor. This can be anyone that has a fundamental understanding, knowledge and experience with the stock market. It could be a relative, a friend, a supervisor, professor, or colleague. A good mentor is a trusted advisor willing to respond to questions, offer support, recommend useful resources, and keep you inspired when the market becomes challenging or bearish. Always be careful while identifying a mentor because the vast majority is not professional traders, let alone credible traders.

You should also seek the help of a financial planner or an investment advisor who is a fiduciary, meaning they are legally required to give you financial advice that is in your best financial interest, rather than their own.

  1. Monitor the market rigorously and proactively

By monitoring the markets daily and reading headline stories you will expose yourself to trends, expert analysis, not to mention economic concepts and general business. Any important event happening in any part of the world has an impact on our financial markets. If you are unable to review your portfolio due to lack of time and knowledge, then this is where your financial advisor comes in handy. Additionally, a savvy investor should be able to anticipate how new events will impact the market and make decisions about the investment.

  1. Always invest in a business you understand

As an investor, you should never invest in a stock but rather invest in a business that you understand. Understanding a company’s products, market, competitive strengths and weaknesses makes it easier for you to project the intrinsic value and future cash flows based on the financial statements.

  1. Do not let emotions cloud your judgment

One critical point to note is that most investors lose money due to their inability to control emotions, specifically greedily wanting to make higher returns within a short period or fear of making loses. Such emotions often influence the decisions that the investors make. To make efficient investment decisions and avoid incurring massive losses, you always have to maintain a rational mind while trading. Young investors should avoid “get rich quick” mentality and be patient while investing.

  1. Have realistic expectations

Having realistic expectations when setting financial goals in terms of your investment returns can help you manage unpleasant surprises from the stock market. The trick is to have a balanced view where your expectations are based on the portfolio and the risks involved.

If you are considering taking up one of these Kenyan stocks or other investment options, starting early is a major advantage. In case you lose money, you will have time to make it back. The most important thing is to seek expert advice from a financial advisor.

  1. Diversify your investment

As a savvy young investor, you should not put all your financial investment in the Stock market. This will safeguard you in case there are any shocks in the stock market. You should spread the risk by exploring other investments options such as government bonds and treasury bills, real estate or putting money in to your own business. For long term saving goals it is advisable to save your money in an RBA approved retirement benefits scheme where your money is safeguarded and grows at compounded interest rates. This will sustain you during your future retirement years.

The author is the Pensions Manager, Enwealth Financial Services

You might also like