Last week I spoke about the tax-free savings account and how it’s a great savings vehicle if you meet the R30 000 cap.
Once you reach a point exceeding R30 000 cash reserves in the bank, things become a little more interesting.
If you are sitting on savings of around R50 000 and more, you then have the ammunition you need to start becoming a self-managing investor.
If you have never invested before it can seem quite daunting, but let me assure you, it’s not rocket science.
And if you have the right broker, self-managing becomes like running your own business.
The other benefit is that you don’t pay management fees.
Selecting a private client broker is probably the best route because a private client broker offers advice and service and you should have free access to talk to the brokers on the desk.
Once you have a share account, our market becomes your oyster.
Again, this all boils down to how much risk you like and how much time you want to spend in the market.
For the purpose of this piece, I will offer advice based on a long-term, semi-conservative, beginner-type investor.
Limit risk by spreading it around
Getting a good spread of stocks in your portfolio is difficult to achieve unless you have a substantial amount to invest, so as a beginner I would suggest starting off with exchange-traded funds that track an index or a sector of the market.
The Satrix 40 is a good example of this.
With your own share account, you are able to buy funds such as this yourself through any broker.
Let’s make the assumption that our market has produced an average return of around 14 per cent per year.
Most fund managers aim to beat the market or some benchmark return, but in order to achieve this they need to take on a certain amount of risk
I must mention the fact that investing in exchange-traded funds, your gain is determined by the performance of the index that it tracks.
For example, if the Top 40 goes up 5 per cent between now and the end of the year, your return on the Satrix 40 fund should be very close to that of the Top 40.
As your account balance grows over time, you can start taking on more risk by adding individual shares.
Also bear in mind that trading accounts are interest bearing, so any unused cash will earn interest.
Spreading your risk is key to longevity in the market, and it’s “time in the market” and not “timing the market” that will make you money.
I deal with many a beginner investor and what I have discovered is that most potential investors avoid the share market because of lack of knowledge or because it is a space reserved for only an elite few.
Let me assure it’s not.
Having control of your own share account and receiving good advice from your broker is all you need on your investment journey to build wealth.
Spreading your risk around probably won’t make you massive amounts of money but it will go a long way to avoiding big losses.
I am always happy to guide my fellow Benonians in the right direction and I’d be happy to answer any questions you may have.
I am not a wealth manager, but I am an investor and a trader, so for now I’ll leave you with this thought: You do not need to be a wealth manager to take charge of your wealth.
Also read:
There’s a trading lesson to be learned from Portugal’s Euro 2016 win
Follow us on these platforms:
Like our Facebook page and follow us on Twitter.
For news straight to your phone invite us:
WhatsApp: 079 431 2006
Instagram: benonicitytimes.co.za