ADVANTAGES OF INVESTING IN SHARES
So maybe you are wondering to yourself whether or not to invest your hard earned cash in the stock market. Perhaps the following points will enlighten you in that decision. Here are the advantages of investing in shares:
· It offers a savings and investing opportunity. This is a more profitable form of saving your money rather than keeping it in a savings account in a bank where it can be affected by inflation and currency devaluation over time.
N.B: keep most of your money in an asset that has a tendency to appreciate (i.e. increase in value).
· Cash inflow in terms of dividends. Whenever the company makes profit and decide it is to be distributed to the owners (shareholders) you will get an income. For example, TBL and Swissport dish out 80% of their profits as dividends. CRDB issues out 35% while NMB issues 33%.
If you buy shares, your money works for you. You get an income from your money without going to work for it.
If dividends are greater than your living expenses, employment will be a matter of choice to you.
· Capital gain (also known as capital appreciation or ongezeko la thamani). Buying shares from a company that has a good performance gives you an almost guarantee of wealth.
Example: Consider Warren Buffet, the second-richest American who got most of his wealth of about $ 12.7 billion from investing in securities.
· If you put your money in stock, you have a high probability to beat inflation and currency devaluation. Hence you protect the value of your money.
· Tax incentive. There is no tax in capital gain because there is a tax advantage on investors. Also, tax on dividends is only a 5% withholding tax, unlike income tax on employment which can go up to 30% of the gross salary. On top of that, listed companies receive a 5% relief on corporate taxes, thus paying a mere 25% taxes on their corporate profits, unlike unlisted companies which pay 30% corporate taxes.
· Raising capital. If you want capital so you can start your own business, you can get it through:
· IPO – you can issue shares of your business and get capital.
· Capital gain – you can sell the shares you own and use the capital gain as a capital for your new business.
· Loan – you can use your shares as collateral when you borrow money for capital from a bank. This is better than if you put your house up for collateral security. Imagine what would happen if your new business venture failed.
· Time saving. If you own a business, the success of the business largely depends upon your health and physical presence. If you own shares, on the other hand, you own part of the business but you do not have to be there to run it. There are board of directors and management that do that work for you, and at the same time you reap the benefits.
· Shares are at affordable prices, anyone can afford.
The following are the per-share (for one share) price for different listed companies (as at 11th August 2015):
ü CRDB Tshs. 405/
ü NMB Tshs. 2,700/
ü SWISSPORT Tshs. 7,300/
ü TBL Tshs. 15,200/
ü TCC Tshs. 16,350/
Of course it must be understood that you cannot buy one share at a time. Most companies let you buy shares costing from Tshs. 100,000 to Tshs. 200,000.
· Shares are invisible and divisible wealth. They are invisible because the public cannot see your wealth. When people see your wealth they can devise means to take it from you, leave alone the number of relatives who will choose to be dependants, the moment they realize you have a couple of houses and cars, an endless stream of people ready and very willing to spend your money.
Shares are also divisible wealth because you can sell a portion of your shares whenever you need a certain amount of cash. On the other hand, it can be very hard to sell a portion of your house when you need the money.
