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What to consider when buying shares

As an investor, venturing into the stock market can be exciting. Investing in shares is a great way to grow your wealth.

You don’t even need to have a boatload of money to start investing in shares. A small investment, made consistently over a long period, cumulatively yields great returns over time.

When buying shares, there are several factors that you should always keep at the back of your mind before opening that wallet. Here’s what you must consider when setting foot into the world of stocks.

Seek professional advice. If you value the advice of experts in other aspects of your life, don't discount it when it comes to managing your money.

Investment professionals will work with you to understand what you are hoping to achieve and provide advice on the right stocks for you to buy. So if you feel you are not able to analyse that information, then you should consult those who can.

Do not take a loan to buy shares. Borrowing money to buy shares is an absolute no-no. People shouldn’t borrow money from any financial institution on the assumption that one day they will sell the shares, pay the institution back, and take their profit. As an investor, you do not do that. Furthermore do not put any money in equities that you require in the near term.

Don’t follow the bandwagon, do not buy stocks because everyone is buying.  Don’t go to the stock market because you heard everyone was investing.

Are you taking a bite because everyone else is relishing it? In such a situation you won’t be able achieve your goals or know the potential of the company that you are investing in.

Read the prospectus, financials, or talk to an adviser so that you can make better decisions. Goals, not the bandwagon effect, should define investment choices.

Diversifying is important. One of the most important rules of investing is never to put all your eggs in one basket.

Diversification intends that the positive performance of some investments can help offset negative performances of other assets, therefore aiming to give a more positive overall return. 

Don’t let emotions get the better of you. There's no denying that the nature of investing in stocks can be emotional. There are times where you may feel tempted to quickly get rid of your stocks if the share prices have dropped, or you received recent news the market is going to plummet.

What you need is the temperament to control the urges that get other people into trouble while investing, always stick to the investment strategy you had mapped out.

The time horizon associated with an investment will play a crucial role in whether it makes sense for your situation. It is good for investors to understand that stocks are suited for long-term investment. I encourage people to think long-term when they invest in shares and not short-term. 

Plan your investment strategy. One of the main things to consider before investing in stocks is to have a plan. This helps you put into perspective not only your investment goals but when and how you want to achieve them.

It can also help to remove the likelihood of emotions influencing your investment decisions. If your approach is intended to be a long-term plan, making decisions based on short-term market fluctuations may greatly affect what you set out to achieve.

What are your financial goals? Understanding your goals will influence what shares you might invest in. One cannot decide on what kind of investment decision is the right one unless their investment goals are clear.

Money is hard-earned, and should always be invested safely and wisely. If you’re considering buying shares, it’s important to keep caution at an all-time high. Research is the foundation of any strong investment decision, and remember when it comes to money matters no question is a bad question.

hkitenda@outlook.com 

The author is an equity and fixed income analyst

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