Investing in the stock market can be a rewarding way to grow wealth, but it requires knowledge, strategy, and a clear understanding of the risks involved. For Zimbabwean investors looking to venture into international markets, particularly the US and Canadian stock exchanges, this guide provides a foundational overview to help you get started.
By Isaac Jonas
Understanding stocks
At its core, a stock represents a share in the ownership of a company. When you purchase a stock, you become a shareholder, owning a small piece of that company. The value of your investment can rise or fall based on the company’s performance, market conditions, and broader economic factors. There are two primary ways to profit from stocks:
Capital gains: This occurs when you sell a stock for more than you paid for it.
Dividends: Some companies distribute a portion of their profits to shareholders in the form of dividends, providing a regular income stream.
Getting started: Buying shares
To begin investing in stocks, you’ll need to take a few key steps:
Open a brokerage account: A brokerage account is essential for buying and selling stocks. For Zimbabwean investors interested in international markets, look up for brokers that allow for Zimbabwean investors to trade US stocks and that have deposits that are insured in case the company goes bankrupt. A broker is just a vehicle that allows you to trade (buy and sell shares) among other functions so what’s key is to consider brokers with lower fees and a wider variety of securities you want to trade or invest in. Also, some brokers manage clients’ wealth so that might be something for your consideration. On the Canadian market check brokers that are top ranked and with low fees and insured depositors money. Ensure the broker you choose supports your local banking system for seamless fund transfers.
Research: Before investing, thoroughly research companies or sectors that align with your interests. Look at factors such as financial health, market position, and growth potential. If you need more information on this, I consult for clients including researching stocks and sharing educational insights as someone who also trades and invests in the financial markets. Book time slot on www.streetwiseeconomics.com. However, to be clear, I don’t offer investing advice as I am not a licensed financial advisor.
Placing orders: Market Order: Buy or sell a stock immediately at the current market price.
Limit order: Set a specific price at which you’re willing to buy or sell. This order may not execute immediately if the market doesn’t reach your desired price.
Building a diversified portfolio
Diversification is a cornerstone of successful investing. By spreading your investments across different assets, sectors, and geographies, you can reduce risk and enhance potential returns. Here’s how to approach portfolio allocation:
Equity allocation: Decide what percentage of your portfolio should be in stocks. A common rule for beginners is to allocate percentage to equities one is comfortable with, adjusting based on your risk tolerance and investment horizon.
There is a need to include several factors which are best discussed based on the client’s financial situation.
Sector diversification: Avoid concentrating your investments in one or two sectors. Instead, spread your holdings across industries like technology, healthcare, finance, and more. I have most of my portfolio invested through Exchange Traded Funds that track the S&P 500, which is broadly diversified.
Geographical spread: Balancing investments between U.S. and Canadian stocks can help mitigate country-specific risks.
Asset classes: Consider including other asset classes, such as bonds, real estate investment trusts (REITs), or commodities, to create a well-rounded portfolio.
Investing in U. or Canadian markets
For Zimbabwean investors, entering international markets comes with unique considerations:
Currency risk: Fluctuations in exchange rates can impact your returns. A strengthening U.S. dollar (USD) or Canadian dollar (CAD) against the Zimbabwean dollar (ZWL) may affect the value of your investments when converting back to local currency.
Regulatory environment: Familiarise yourself with the legal frameworks governing US and Canadian markets. In the US, the Securities and Exchange Commission (SEC) oversees market activities, while Canada operates under the Canadian Securities Administrators (CSA).
Tax implications: Dividends and capital gains from foreign investments may have different tax treatments in Zimbabwe. Consulting a tax advisor is recommended to understand your obligations.
Market access: Direct Investing: Use a brokerage with international capabilities to buy stocks directly.
ADRs (American Depositary Receipts)**: These allow you to invest in foreign companies without dealing directly with foreign exchanges.
ETFs (Exchange-Traded Funds): ETFs offer a diversified approach by providing exposure to a basket of stocks or an entire index, such as the S&P 500 or TSX.
Practical Steps for Zimbabwean Investors
Education: Continuously educate yourself about market trends, investment strategies, and financial news affecting both local and international markets.
Start small: Begin with manageable amounts by using platforms that allow fractional share buying or investing in low-cost ETFs.
Regular investments: Consider dollar-cost averaging, which involves investing a fixed amount at regular intervals to spread out the risk of market volatility.
Risk management: Only invest money you can afford to lose, and align your investments with your risk tolerance and investment horizon.
Stay informed: Keep an eye on economic policies in the US and Canada, such as interest rate changes or trade agreements, as these can significantly impact markets.
Investing in international stock markets offers Zimbabwean investors an opportunity to diversify their portfolios and potentially achieve significant returns. However, it’s essential to approach this endeavor with caution, knowledge, and a well-thought-out strategy.
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Stay informed, stay ahead, and take confident steps toward achieving your investment goals. Till next time, trade and invest wisely and may the markets be on your side!
Isaac Jonas is a Canadian based economist and Principal consultant at Streetwise Economics. He is also a retail investor, retail trader and content creator, focusing mainly on the US and Canadian capital markets. He regularly shares insights via his social media handles and YouTube Channel (Streetwise Economics). His website is www.streetwiseeconomics.com and can be reachable on isacjonasi@gmail.com. Insights shared in this article are based on current market conditions which may be subject to change without notice, hence this article does not amount to investment advice. – Business Weekly
