A stock, also known as equity, represents ownership in a company, with shares being units of that ownership. To buy and sell shares, investors need a brokerage account and a licensed stockbroker. Dividend income is a portion of a company's profits distributed to shareholders. Common Nigerian stock market myths include the idea that it's a quick path to riches, and that it's too risky for the average investor.
1. What is a stock?
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, according to Investopedia.
When you buy a stock, you're essentially buying a fraction of that company.
There are two main types of stock: common and preferred. Common stock offers voting rights and variable dividends, while preferred stock typically offers fixed dividends and priority in liquidation.
2. How do I buy & sell shares?
Step 1: Open a brokerage account: You'll need an account with a licensed brokerage firm, either online or through a traditional brokerage.
Step 2: Choose a stockbroker: If you prefer personalized advice, you can choose a human broker. If you're comfortable making your own decisions, an online broker can be more cost-effective.
Step 3: Fund your account: Deposit money into your brokerage account to be able to buy shares.
Step 4: Research and select stocks: Research companies you're interested in, looking at their financial performance, industry outlook, and other relevant information.
Step 5: Place your order: Use the brokerage platform to place a buy or sell order. You can choose between different order types (e.g., market orders, limit orders) depending on your investment strategy.
Step 6: Monitor your investments: Keep track of your portfolio's performance and make adjustments as needed.
3. What is dividend income?
Dividends are payments made by a company to its shareholders, representing a portion of its profits, according to Investopedia.
When a company is profitable, it may choose to distribute some of those profits to shareholders in the form of dividends.
Dividends can be paid out as cash or additional shares.
Dividend payments are typically made on a regular schedule (e.g., quarterly).
4. Common Nigerian stock market myths:
Myth 1: The stock market is a get-rich-quick scheme:
While it's possible to make significant returns, the stock market is not a guaranteed path to wealth. It requires careful research, patience, and a long-term perspective.
Myth 2: You need a lot of money to start investing:
You can start investing with small amounts, especially with fractional shares or through investment apps.
Myth 3: The stock market is too risky for the average investor:
Diversification, research, and a long-term investment strategy can help mitigate risk. There are also low-risk investment options like bonds and mutual funds.
Myth 4: All stocks are the same:
Different companies have different risk profiles and potential for returns. It's important to research individual stocks and understand their specific characteristics.
Myth 5: Past performance guarantees future returns:
While historical data can be helpful, it's not a guarantee of future success. Always consider current market conditions and company-specific factors.
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