Why are you investing?

When making a decision to invest on the stock exchange, you buy a stock because you believe its value will go up overtime.For most Rwandans who are yet to be exposed to investment stocks, it is likely that impulse will play a role when buying into companies’ shares. Yet in trying to minimise risk on the stock exchange you must have substantial knowledge of what you are doing and how to do it. Always two issues must be kept in mind when buying stocks. It is either for capital gain or for income. This dictates the type of company you buy into; it can be a dividend paying company or the one which does not pay dividends, but either way you want to maximise value for your money. Those interested in income should look to invest in mature companies because they usually pay dividends but with less growth opportunities. The reverse is true for investors with intention of capital gain. The advantage of capital gain is that income is subject to taxation, but the amount varies among tax authorities in particular economies. Fear stems from the volatility of the market and companies that pay dividends can sometimes beat the market when you hold them for a long time. This depends on how long much profits the company makes overtime. Those who look for capital appreciation, search for potential growth of the company and therefore growth of its stock prices. In most cases when attempting to make quick money, it can lead to losing much of it. At the early stage it’s not good to be a trader but rather an investor whose focus is the long term. But all this depends on your needs and investment horizon.A better strategy would be to space out investments over the next several months. Younger investors can buy companies that do not pay dividends because their investment horizon is much longer and they can invest in more risky companies that do not pay dividends. The benefit here is realised on the spread; one is hoping that stock prices will go up so they can sell at a profit. Contact: gahamanyi1@gmail.com