Why Invest in Shares

What is a Share

Shares, also known as stocks or equities, are the unit of investment in individual companies. A share is simply a divided-up unit of the value of a company. If a company is worth $100 million, and there are 50 million shares in issue, then each share is worth $2. As the overall value of the company fluctuates so does the share price.

Check out this great video from our friends at Joyful Investor about what a share is.

Why do company issue shares?

Companies issue shares to raise funds for investment so they can develop and grow to financial success. By buying company shares you become a shareholder and have a stake in the potential future success. At any time you can then sell your share of the company to those who want to buy it.

The company will provide a cut of the profits to shareholders via dividends, and if the share price goes up – the company and shareholders benefit.

 

Why Invest in Shares

Great returns

Shares have been shown to outperform government and corporate bonds, real estate and other types of assets in the mid to long term.

 

Regular income

Provide annual income via dividends.

Dividends are a reward to shareholders, and usually paid when a company is profitable and has cash in the bank.

Dividends from shares can have inflation built into earnings where companies are able to pass cost increases onto customers.

Investors enjoy unlimited participation in the earnings of the firm. Of course, investors cannot expect the company to pay out all its profits in a form of a dividend as this may come at the risk of future profitability and a lower share price.

 

Capital growth/gains

By owning equity in companies with growth potential, investors have the opportunity to benefit from capital gains as the asset grows in value over time.

Usually as a company becomes more profitable, its share price goes providing the investor with a gain in their capital.

If the value of the share itself rises, you might be able to sell the shares for a profit.

Alternatively, you can keep holding the shares, and if the company continues to be successful the value of your shares could rise.

 

Chance to invest in exciting sectors

Share ownership allows you to take stakes in companies in new and exciting industries/areas as well as those experiencing rapid change. It enables you to invest in the mobile phone boom by buying shares in companies like Safaricom, growing bank sector by buying shares in Ecobank, and more.

With a small starting capital, shares give you a chance to not miss out on Africa rise and growth.

Other investments like real estate and bonds are usually more limited in their scope.

High investment protection

Due to the public nature of shares, they are usually held on regulated exchanges, audited by major auditors and their financials available to anyone, and the process of buying and selling shares is via regulated brokers. This transparency and level of regulation differs from other investments like real estate where you are at the mercy of your unregulated property manager.

MoneyInAfrica provides easy to understand financial analysis based on company records and industry reports for your information.

Low Maintenance

It is important to regularly review your portfolio, shares need little in the way of maintenance. Compare this to real estate, where ongoing effort (and often expense) is required to maintain the capital value and returns potential.

MoneyInAfrica provides ability to watch shares you are interested in, and track your portfolio.

Highly liquid

Equities are traded on  stock markets in Africa. Some of these shares are highly liquid which means that they can be converted into cash quickly and without big changes in price.

Unlike other investments like real estate, there is relative ease in the transfer of ownership and speed of exchange.

 

Corporate control

Shares come with certain rights including the voting rights on what the directors of the company can do. Ordinary shares represent the majority of shares held by investors.

When you own an ordinary share of a company, you usually have one vote per share that entitles you to participate in the election of the board of directors.

 

Shares have been known to provide higher returns than any other long-term investment. However, share investments come with risks, and you should be made aware of them before investing.Past performance does not necessarily indicate a financial product’s future performance. This website aims to provide information to help you make your own informed decisions. Our publications, ratings and analysis should be viewed as an additional investment resource, not as your sole source of information. This website does not provide personal advice based on your circumstances. To obtain advice tailored to your situation, please contact a professional financial adviser.

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About Andrew Kwabena

The Editor of MoneyInAfrica

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