The stock market is the greatest wealth creation machine ever invented, but most Kenyans avoid it due to it's complexity. It doesn't have to be that complicated: 1. Use the NSE for dividend income and offshore stocks for capital gains. 2. Pick Exchange Traded Funds (ETFs) instead of individual stocks. You don’t have to learn how to analyze companies or financials statements
Here's why and how this straregy works: 1. You make money in the stock market in two ways a) Capital gains - You buy a stock at KES 5 and sell it at KES 10 b) Dividend income - Shareholders of a company share the profits declared by a company during a financial year.
The Nairobi Securities Exchange has proven to be a tough ground for growth investors (investors seeking capital growth in the long term by investing in companies with growth potential) See the chart below for the performance of the NSE since 2008 - 2012
Compare that with the performance of the New York Stock Exchange (NYSE) from 2000 to 2023 The NSE seems to defy the logic that the "stock market always goes up" This is because our local bourse isn't as developed as in that of other world leading economies.
Even Warren Buffett agrees that the average stock market investor should be investing in a low cost index fund. An index fund is similar to an ETF. Instead of investing in a single stock like Apple or Tesla, you invest in an index that tracks a bigger sector of the stock
In 2023, here's how the top 3 indices performed: 1. The S&P 500 +21.9% 2. The Nasdaq 100 + 53.81% 3. The Dow Jones Industrial Average +13.70%
On the other hand, the NSE has some counters with very good dividend yields and solid dividend track records. A look into the top 10 dividend stocks in the NSE has some counters with dividend yields of above 10% which implies a 10% return on investment.
This strategy works because: 1. You are hedging your portfolio against the weakening KES The KES on average loses 2-4% to the USD per annum 2. You don't have to read financial statements and analyze companies to know which stocks to buy, when to buy and when to sell 3. Tax
Investing in the stock market, specifically offshore stocks, is one of the main focus areas in our Money Mastery Masterclass You learn how to invest in global markets as a Kenyan, to maximize your returns. Our July cohort starts next week on Monday, details on posters below.