|
Getting your Trinity Audio player ready…
|
By Reggies Mtambo
Simplifying investment asset classes and guiding you to maximise your wealth
The stakes for achieving universal access to high-quality and simplified education are high as many Zimbabweans are pursuing financial freedom. If you’re like most people, you’d probably like to have so much money that you never need to work again. However, many people dismiss the idea of being financially independent as something unattainable.
The Zimbabwe Stock Exchange provides an alternative avenue for investment through stocks. Bang for Buck television series, presented by Equity Axis, is bridging the knowledge gap by bringing simplified yet comprehensive financial education to the public. The most recent episode delved into the different investments asset classes available on the market, breaking them down for easy understanding.
What are the investment assets available on the market?
The show zoomed in on the most popular investment asset class, which is commonly known as stocks or equities, as well as the exchange traded fund (ETF) which was first launched in Zimbabwe through Old Mutual Investment Group. An ETF is a derivative instrument that mimics the movement of top 10 companies by market capitalisation. In other words, if the companies perform well, that will subsequently pull the ETF up. A stock/ equity is a well-known financial instrument that describes units of ownership (shares) in one or more companies.
How do stocks work, and how do you evaluate risk and rewards?
Investing in stocks helps to create financial security and independence. Stocks are an important asset class because they make up at least 25% of the total funds that are invested around the world. They are an important market for the Zimbabwean economy. By selling shares, companies gain access to capital to grow their business, and investors receive a piece of ownership in a company. The value of that ownership has the potential to grow, based on the company’s future performance.
The episode shared the analogy of bricks to demonstrate how the equity market works. Investors bid for stocks by offering a certain price for them, and sellers then ask for a specific price. When these two prices match, a sale occurs. If one has a house with 100 000 bricks and each costs a dollar, that means for each $1000 you pay, you own 1% of the house. Therefore, when the value of the house triples to $300 000, the value your bricks will have grown by 200%, earning a dividend of 10 cents per every 1000 bricks you own.
Using the scenario above, the episode emphasized that there are two types of investment strategies: speculation and long-term investment. If you had chosen to hold onto the thousand bricks for five years and enjoy dividends and the growth of your capital in the process, that would translate to long-term investment. The decision to sell off the bricks for an investment in industrial property, then into a lucrative mining adventure 6 months later, would describe investment for speculation- this is a riskier strategy than a long-term investment.
The strategies are applicable in different business sectors that one can invest in, including companies offering financial services, real estate companies, industrial firms, mining counters, agricultural or food processing firms, and so on. The episode also walked viewers through how to get started as an investor. You can start investing with as little as ZLW$500 when using digital platforms, or ZWL$10000 when directly investing using a stockbroker.
Is the stock market safe?
With 56 counters, out of which 49 are active, the Zimbabwe Stock Exchange history dates back to 1896. It has been gaining popularity over the years, and is one of the leading stock markets in Africa. Recently, Zimbabwe also established the Victoria Stock Exchange, which trades in US Dollars and currently lists two companies.
Consequently, there has been steady growth in the underlying performances of listed companies on ZSE. The ZSE Top 10 continues to push upwards, spurred by gains in Delta and BAT among others. Strong earnings released by Delta have helped sustain a rallying momentum for the overall stock market.
It is important to note there are risks involved. Returns are not guaranteed, and you may lose money in the short term as the markets go up and down. However, the pattern on the ZSE shows there are lucrative investment opportunities. The latest financials for the periods from December 2020 to February 2021 show that there is a strong growth in volumes which typically spurs earnings and thus help support valuations.
The second episode of Bang for Buck was informative and provided education for investors and potential investors. Follow the series and unlock financial freedom. Visit the Equity Axis Youtube channel to watch Bang for Buck Episodes, and follow Old Mutual Zimbabwe for more information about how to invest your money.