How to Start Investing in the South African Stock Market

Saving your money in the bank, means you will have money when you need it. But it won’t increase your wealth. Investing is one of the best ways to grow your money. Find out how you can get started today.

Our economy shrunk by 3.2% in the first quarter of 2019 and many of us are suffering from the effects of inflation; particularly with fuel, food and electricity (all things we cannot avoid). We are taking out more and more debt to survive and a slow job market is leaving us all in turmoil.

So, what can we as South Africans do to improve our personal financial situation? Start investing our earnings for long term financial growth…

You might be saying that you can’t afford to put money away every month into an investment account. But if can you afford to spare as little as R100 a month, then you can afford to invest. And the best time to start is now. Every month you invest, so does your money pot. You don’t need a small fortune to start, but you do need to equip yourself with knowledge.

Investing your hard-earned money, no matter how small, may seem a little frightening. And it’s often because we don’t know how or where to begin.

The aim of this article is to give you a bit more knowledge about investing in the stock market world and to help you get started.

The Johannesburg Stock Exchange (JSE)

All South African investments go through the Johannesburg Stock Exchange (https://www.jse.co.za). Your first step is to open an account with a South African stockbroker. You cannot buy a share of stock with the JSE unless you go through a registered broker. There are various online stockbroker accounts available. You can find a list of authorised JSE Equity members on the JSE website.

Easy Equities (https://www.easyequities.co.za) is one of the easiest online broker platforms available in South Africa. Sign up is quick and everything is done online. They also offer an app to make things easier for you to monitor when on the go.

*Please note that we are not affiliated with the providers mentioned above.

Understanding the Stock Market

The stock market is a vital part of our economy. It allows both companies and investors to gain financially. Investing in the stock market is a way for you to really build real wealth. And participating in the stock market is one way companies have for getting funding needed to boost their profits (which they then share with the investor – you).

Before you begin any type of investing, it is important that you understand what choices you have available to you. Although there are various investment categories available, for the sake of keeping things simple, all categories fall under two main options; equities and bonds.

Equities

Equities (also known as shareholder equity) are made up of stocks and shares. Investing in equities allows you to purchase individual shares or stocks.

Stocks are a collection of shares from either one company or various companies. A share is one or more units or a percentage of a single company.

When you buy stock (a collection of shares) in a company, you are buying a part of that company. You essentially claim a percentage based on how much of the company you bought. You may then sell the shares in your stock to buyers who would also like to own a small unit or percentage of the company.

The number of shares that make up a stock and how much they cost depend on the company, and they change every minute. This is where we can imagine the Wall Street Stock Exchange; a lot of numbers and graphs constantly changing before our eyes…

Bonds

Bonds are a type of debt that you provide a company for the purpose of raising capital and to finance long term investments. A bond investment works on a pay out of a fixed interest rate (usually twice a year) from the money you invested. A bond allows you to create a predictable income stream above-inflation returns. This is because they offer higher annual interest rates than your traditional saving account. They are considered secured investments (because they borrowed money from you in exchange for interest) and the more you invest, the more you will receive in returns. You can invest in a variety of bonds such as, property bonds, RSA Retail Savings Bonds, Government Bonds or corporate bonds which can find through a registered online stock broker.

Investment Programs

You can invest in different types of bonds and equities individually, but many prefer to build their portfolio using an investment program. They make it a lot easier to maximize your gains and diversify between both equities and bonds. They are also perfect for those of us who aren’t full-time traders.

Let’s look at a few common types of investment programs you can start researching today.

Mutual Funds – Low Risk

Mutual funds allow investors to pool their money together and build a large portfolio fund of bonds, equities, and other commodities. The value of shares included in a mutual fund do not fluctuate every few minutes like equities purchased on their own. Instead, their worth is measured on the net asset value (NAV). NAV looks at the mutual fund’s total asset value minus any liabilities such as debt and staff salaries, then dividing the difference by the number of shares held by investors.

Exchange-Traded Fund (ETF) – Mid Risk

Like mutual funds, an ETF is also a fund that allows investors to pool their money together to maximize returns. They also contain a range of stocks, bonds and other commodities such as gold and cash value items. You buy a percentage of this fund and benefit from the net asset value (NAV). Returns are measured on industry trends rather than the individual companies’ performance.

Unlike mutual funds, which can be expensive, ETF’s don’t require a large amount of capital. This makes this type of investing a great option for beginners. They are well regulated by the Johannesburg Stock Exchange (JSE) and offer you a variety of well-known companies with proven growth track records. A common strategy used with EFT’s is “Rand Cost Averaging”. This strategy allows you to invest a fixed amount monthly regardless of whether the price of stocks and bonds go up or down. This way you average your overall investment over a long period of time to ensure you still benefit.

Exchange-Traded Note (ETN) – High Risk

ETN’s are like ETF’s but function more like a bond. The difference is that they are unsecured, and instead of investing in various companies’ bonds and stocks you invest in banks. The interest earned is not fixed and can change depending on how the bank performs. Like ETF’s you pay into them monthly, however, if the ETN that you invested in went bankrupt, you will lose your investment. If this type of investment interests you, make sure you’ve researched the risks well and you understand the market.

All Investments Come with Risks

If you are interested in the investing world, it’s important to remember that it will come with risks. Investing offers many pros and cons, but if applied with proper knowledge, it can and will grow your wealth.
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The information being presented is without consideration of the investment objectives, risk tolerance or financial circumstances of any specific investor and might not be suitable for all investors. Debt Rescue is not responsible for any participation in the stock market due to the content presented on this page.