Broaden your investment horizon
Investing on the stock market is less expensive and easier than you think
Many people think it’s complicated and expensive to start investing on the stock market, but this doesn’t have to be the case.
There are different ways to gain access to the earning opportunities that can be unlocked by investing on the Johannesburg Stock Exchange (JSE). A good rule is to invest only as much as you can comfortably afford after meeting your personal and household expenses. For example, if you invest in a tax-free savings account, it’s possible to be an investor on the stock exchange for about R300 per month.
Investing in shares means you are buying a part of a company that is listed on the stock exchange. A company which has chosen to list has to operate according to strict regulation that is set out by law. As an investor, you hope that over time the value of your shares will go up, so that eventually you can sell your shares to make a profit. You also gain from dividends paid out as and when the company makes a profit and shares this with the shareholders.
It’s important to set out what your investment goals are and how long you need to invest for. Are you planning for your retirement? How long you need to invest so you can meet your goal could be between 15 and 30 years. Are you saving for your children’s education, or perhaps a dream holiday? Here, your investment horizon could be a decade or perhaps three years, respectively. Your investment objectives will influence how long you plan to invest.
The exchange has partnered with a group of stockbrokers and financial services providers who can provide you with individual investment advice as well as opening an account to access the exchange’s listed products. To find out more, visit www.jse.co.za/taxfree. These stockbrokers can manage your money for you and help you to invest. For this service, and for their expert advice, you will need to pay stockbroking fees, similar to and even lower than your banking fees.
For first-time investors, a product called an Exchange Traded Fund (ETF) is an easy and affordable way to get started. Instead of buying shares in one company, ETFs allow you to invest in a basket of different shares. ETFs work by following a particular stock market index. An index combines the share prices of a group of shares to show how they are performing overall.
For example, the FTSE JSE Top40 Index combines the share prices of the top 40 largest investable companies on the JSE. If you buy an ETF that follows this index, it is as if you are buying shares in these 40 companies. The value of the ETF moves up and down with the share prices of these 40 companies.
This is good for you because it spreads the investment risk and benefit as the average performance of all the companies allows for diversification – you could also think of it as not putting all of your eggs in one basket.
Tax-free savings accounts (TFSAs) are a good starting point to investing in the exchange. TFSAs are savings accounts that give you tax benefits for saving.
The JSE offers a TFSA that provides investors with a way to invest in ETFs. Investors in a TFSA are allowed to invest up to R33 000 a year and limited to a R500 000 lifetime contribution. Investors can choose to either contribute monthly or as a once-off lump sum. There is no tax on interest earned, capital gains, dividends withholding and securities transfers. There is also the benefit of lowered transactions or trading costs. Other terms and conditions apply.
Whatever investment you make, it’s best to make an investment choice that is based on what you can afford and suits your investment horizon.