The Advantages Of Investing In The Stock Market

The Nigerian Exchange Group (NGX), formerly known as the Nigerian Stock Exchange (NSE), offers a platform for trading various financial instruments, including equities, exchange-traded funds (ETFs), and derivatives. Over the years, it has experienced significant growth and attracted both domestic and foreign investments, fostering investors’ confidence.

By investing in the stock market through the NGX, individuals have the opportunity to expand their investment portfolio and explore a wide range of investment opportunities presented by listed companies. However, it is important to note that equity investing carries certain risks, ranging from moderate to high. Despite these risks, equity investing can offer substantial returns.

There are several factors that may discourage individuals from investing in the stock market, such as age, cash flow, time horizons, unpleasant experiences, and negative perceptions. However, it is crucial not to dismiss the potential benefits of investing in equities. Instead, it is advisable to approach equity investing with a curious mind and a willingness to learn.

In recent times, amidst deregulation of petrol prices, the floating of the Naira, and inflation, the NGX has proven to be a safe haven and has preserved its value over inflation. It has achieved a year-to-date return of 39.47% and currently has a market capitalization of NGN 59 trillion. Various sectors within the NGX have also experienced significant growth rates, including Insurance (69%), Banking (72%), Consumer goods (93.70%), Real Estate (112%), Oil and Gas (114%), Conglomerates (335%), Services (161%), and Power (167%).

While many investors have benefited from the stock market’s growth, it is important to note that the trajectory of growth is slowing down and carries heightened risk. There is also the volatile nature of the market which is referred to as the fear index when stock prices swing from highs to lows.

Nevertheless this should not deter individuals from including equities in their investment portfolio. It is crucial to employ intelligent investment strategies and conduct thorough analysis to mitigate risks and maximize returns.
Investing in the stock market offers several advantages, including:

1. Ownership: By investing in equities, individuals become shareholders of the company, giving them a stake in its ownership.
2. Higher Returns: With careful stock selection and intelligent trading strategies, the stock market has the potential to provide high returns. In many cases, equity returns surpass inflation, contributing to wealth creation.
3. Liquidity: Stocks are relatively liquid, allowing for easy transfer of ownership, especially with the increasing number of daily transactions on the NGX.
4. Dividends: Shareholders are entitled to receive a portion of corporate earnings, distributed according to the decisions of the board of directors.
5. Right Shares & Bonus Shares: Investing in equities allows for the preservation of ownership through right shares, while bonus shares are provided as free shares, sometimes in lieu of dividends.
6. Ease of Management: for instance, real estate is considered high maintenance especially if one has a rouge tenant, illiquid while stocks have a low maintenance threshold.

The benefits of investing in equities and equity funds are evident. Equities have the potential to generate substantial returns. However, it is crucial to approach equity investing intelligently, relying on facts rather than emotions. Minimizing risks and achieving desired returns requires a long-term investment approach.

Written by Olubunmi Sodade.