Investing in shares is one of the most popular ways people build wealth. It offers the chance for an individual to earn a regular income through dividends and grow their money over time through capital appreciation. With mobile apps making stock trading more accessible and financial literacy campaigns gaining momentum, investing in shares has become increasingly popular among Kenyans; thus, more people are exploring the Nairobi Securities Exchange (NSE) as a way to grow their wealth. But for many, the stock market can seem confusing or even intimidating. The idea of buying and selling shares often feels complicated, especially if you are new to investing, as many people don’t know how to start, the procedures to follow, the risks associated with this investment, and how to mitigate them. In this article, we guide you through the process of shares investment in Kenya, understand various types of shares, the various risks involved in the investment of shares, and the strategies for you to invest in shares successfully.
Understanding Shares
Shares are the basic units of ownership in a company. When you buy a share in a company, you become a partial owner of that business. This grants you specific rights, including a claim to a portion of the company’s profits through dividends, the opportunity to benefit from the company’s growth and increased share price, and the ability to vote on major company decisions, as per Basia (2023).
Companies issue shares because they need money to grow, expand, or finance their operations. Instead of depending only on bank loans, a company can raise funds by selling shares to the public. When people buy these shares, they provide capital to the company and, in return, gain part-ownership in the business. This system benefits both sides. There are two main types of shares:
- Ordinary Shares – are the most popular type of share. These types of shares, you gain certain rights that allow you to participate in the company’s affairs. This includes voting for the board of directors and, in some cases, having a say in major corporate policies that are made by the business. In addition, common stockholders may receive dividends when the company distributes a portion of its profits.
- Preference Shares – Unlike ordinary shares, preference shares do not usually come with voting rights, meaning investors have little say in company decisions. A study by Marc (2020) highlights that preferred shareholders are given priority when it comes to receiving dividends and are also ahead of ordinary shareholders in the event that the company closes down and its assets are distributed. While preferred shares are often seen as more stable and secure, they generally provide fewer opportunities for significant long-term gains.
How to Start Investing in Shares in Kenya
Getting started in the stock market may seem complex at first, but the process is actually straightforward once you understand the steps involved. Shares are being sold on the stock market. A stock market refers to the platform where the exchange of shares between investors and other parties takes place. In Kenya, the primary stock market is known as the Nairobi Securities Exchange.
The Nairobi Securities Exchange was established with a key role of facilitating the distribution and formation of capital in the Kenyan economy. An investor can easily invest in a variety of investment products offered on the Nairobi Securities Exchange, which include shares, Bonds, and exchange-traded funds.
After understanding what a share is and where you can exchange it, here is the step-by-step breakdown on how you can practically acquire shares, thus investing in a company, as per the study done by Kigen (2021)
Step 1: Prepare for Share Acquisition
A. Investment goal
The first step in investing is to define your primary investment objective. What is your main aim of investing? You can invest, for instance, for retirement, for capital appreciation, or even earn dividends. Understanding your goal will help determine the investment decision you will make.
B. The risk profile of the investment
In the stock market, there is a rising and falling of the prices of the securities over time, which makes the stock market volatile. Investors with a high risk tolerance are comfortable with these fluctuations, as they are risk seekers who are willing to take high levels of risk and focus on the potential for greater returns. Those who are risk-averse, unwilling to take high-risk levels, prefer stability and may choose safer, more predictable investments.
C. Expanding your knowledge base
Investing can be complex, so building your knowledge is essential. Resources such as books, online guides, and financial news can help you understand the stock market, available investment options, and strategies. Staying up-to-date on market trends and economic developments is crucial for making informed decisions.
Step 2: Selecting a Stock Broker
A stock broker refers to the licensed financial professional or firm that executes buy and sell orders for stocks and other securities on behalf of investors, typically in exchange for a commission or fee. These people usually help you in the stock market to buy or sell shares on your behalf. They usually possess investment and stock market knowledge, as per Gordon (2024), acting as intermediaries between individual or institutional investors and the stock market. They perform the following functions:
- Placing an order – the broker buys or sells the share based on the instruction you gave them.
- Market research – you need to make an informed investment decision using the previous market data. It’s the role of brokers to provide you with market research reports and analysis tools to guide your decision-making.
- Management of the account – it’s the role of the broker to ensure accurate record-keeping and provide statements on the transactions of your account, as well as the account balances.
Choosing the right broker is crucial for the success of your investment. A study done by the Chief Editor (2025) highlights the following factors for you to select the best stockbroker:
- The commission fees charged are where you need to consider the fees charged by different stock brokers while offering the same service.
- The experience of the stockbroker is crucial; the right stockbroker needs to have a proven record of helping investors invest in the Kenyan market.
- Customer Service, you must look for a brokers who provide quick and helpful support.
- The investment platform – ensure that you choose a broker with an easy-to-use and understandable platform that suits your needs and aligns with your technological requirements.
Step 3: Opening the Central Depository Account
The Central Depository System (CDS) is a computerized system that enables investors to hold and transfer securities, such as shares, in electronic form, thereby eliminating the need for physical share certificates.
Instead of issuing paper certificates, ownership of securities is recorded electronically in an investor’s CDS account, which is maintained by the Central Depository & Settlement Corporation (CDSC) in Kenya. Therefore, an investor must open a CDS account with the assistance of a stockbroker to eliminate the need for a physical certificate. At this stage, you are required to complete the CDS account opening form, provide the supporting documents, and then make an initial deposit.
Step 4: Conduct Market Research
Before committing money to any investment, market research is crucial to understand the market and the business you are going to invest in. This will help you make a well-informed investment decision and discover additional investment opportunities. Below are the main keys you should use while doing the market research.
- Fundamental analysis – this approach aims to ensure that you understand the business from which you are buying shares. To understand the financial health of the company and its prospects, analyze the income statements, cash flows, and balance sheet of the business. Examine the industry trends in which the business operates and review the company’s management team.
- Technical analysis is an approach that aims to analyze historical market data and indicators to identify various trading opportunities. In this approach, you must analyze the price trends, look at how many shares are being traded to see if investors are mostly buying or selling, which shows how the market feels about the stock, and then find the price points where a stock usually stops falling because many people start buying or stops rising because many people start selling.
Step Five: Purchase the Share
Once you’ve chosen a stockbroker and done your research, it’s time to make your first investment. This involves placing a buy order and then tracking your shares. Once you have identified the shares you are interested in buying, with the help of a broker, you then place an order. There are two main ways your broker can execute the order, as explained below:
- Limit order-This lets you set the highest price you’re willing to pay for a share. The trade only goes through if the share price drops to your set limit or lower. It gives you more control over the buying price, but the order might take longer to complete, especially if the stock isn’t traded often.
- Market order – In this method, you instruct your broker to buy a set number of shares immediately at the best available market price. It’s the fastest and most straightforward way to buy, but the actual price you pay may be a little higher or lower than the one you first saw quoted.
Risks of Investing in Shares
Before you decide to buy shares, it’s essential to understand that the stock market is not risk-free. While investing in companies can help grow your wealth over time, the value of your shares can rise or fall for many reasons, some you can predict, and others you cannot. Being aware of these risks enables you to plan more effectively and make more informed decisions. Below are the risks.
- Market Volatility – Share prices can rise or fall quickly due to changes in the economy, global events, or investor sentiment. These market swings are often referred to as volatility, which can impact the value of your investment at any time.
- Company’s Own Issues – such as poor management decisions, heavy debt, or intense competition, can reduce profits and drag down its share price. This will affect the value of your Investments and the amount of returns in the form of dividends.
- Regulatory and Political Factors – New government policies, changes in tax laws, or political instability can create uncertainty and impact the performance of specific companies or entire sectors.
- Inflation and Currency Changes – If inflation rises and the devaluation of the currency against major currencies, the real returns from your investments may shrink, thus having a negative impact.
- Investor Behavior – Sometimes the biggest risk comes from people’s own actions. Following market hype or making impulsive trades based on speculation can result in significant losses.
Investment Strategies for Kenyan Investors
Investors in Kenya, like anywhere else, need strategies that not only help grow their wealth but also protect their capital from unnecessary risks. Below are some common approaches that can work well in the Kenyan market and help you achieve success.
A. Long-Term Investing
This strategy involves buying shares and holding them for several years rather than trying to make quick profits. Over time, strong companies tend to increase in value, and their share prices typically reflect this growth. Long-term investing also helps smooth out short-term market fluctuations, making it a safer approach for protecting capital.
B. Dividend Investing
Companies pay part of their profits back to shareholders in the form of dividends. By investing in these companies, investors enjoy a steady stream of income in addition to any gains from rising share prices. Dividend-paying stocks are often established and stable businesses, which makes them less risky and attractive for investors who want both income and security.
C. Diversification
Diversification means spreading investments across different sectors such as banking, agriculture, telecommunications, or energy so that poor performance in one area doesn’t wipe out your entire portfolio. In Kenya, where policy changes or economic shifts can significantly impact specific industries, diversification is a key means of mitigating risk.
D. Invest Regularly
In this approach, an investor needs to put in a fixed amount of money regularly, for instance, invest every month regardless of whether prices are high or low. Over time, this strategy helps smooth out the effects of price fluctuations because you buy more shares when prices are low and fewer when they are high. This disciplined approach reduces the risk of investing a large sum at the wrong time.
E. Value and Growth Investing
Value investing focuses on companies that are undervalued, meaning their stock price is lower than what their financial strength suggests. Growth investing, on the other hand, looks at companies expected to expand rapidly in the future, even if their current stock price is high. Both approaches can protect capital when applied carefully: value investing provides a cushion against overpaying. In contrast, growth investing allows investors to benefit from emerging opportunities in Kenya’s dynamic economy.
Conclusion
Investing in shares offers one of the most effective paths to building long-term wealth, particularly within Kenya’s growing financial market. With the proper knowledge, tools, and disciplined approach, anyone can participate and take advantage of stock market opportunities. To invest in shares, simply follow these steps: prepare for the purchase, select a broker, open a central depository account, conduct market research, and then buy the shares. As with any type of investment, investments in shares are accompanied by risks, including inflation, market volatility, and a company’s specific challenges, which may impact investors’ wealth. To invest successfully, you need to apply strategies such as diversification, choose long-term investments over short-term ones, invest regularly, and utilize dividend investing. This is the right time to begin small, stay consistent, and steadily grow your financial future.
