How to ... start trading??on the JSE

2014-08-17 15:00

Neesa Moodley-Isaacs looks at the many ways to start building a share portfolio and make your money grow

First you need to understand that investing in the stock market is not about making a quick buck. You should be investing with a three- to five-year goal, taking your time to build wealth instead of looking to make easy money.

Ridwaan Moolla, the head of online trading and investing at FNB Securities, says one of the things many clients forget to take into account is their costs as a percentage of their investment.

For example, if you invest R1?000 and the cost of the investment is R100, your investment has to grow by at least 10% for you to break even. Moolla says ideally your costs should be less than 5%. As trading fees are in the region of R100 per trade, you would need to invest at least R2?000 to keep your costs manageable.

If you are investing less than R2?000 a month, you should consider entry-level stock market investment tools such as the FNB Share Saver or Standard Bank Auto Share Invest.

Buy low, sell high

Investment guru Warren Buffett repeatedly advises that you should always buy low and sell high when you invest in shares. The problem is that all too often, your emotions can get the better of you.

This is more so the case when investors see media headlines screaming that a share has plummeted and then sell their investment in a panic. This emotional reaction often results in investors selling when the market is at a low point and scrambling to buy when shares are overpriced.

Keep a check on your emotions and ride out market fluctuations. If you maintain a steady portfolio, you will be rewarded in the long term with growth in the value of your investment.

Diversify

Diversification simply means you should invest in different types of shares across different sectors so that you minimise your risk of losing money. For example, if you invest in technology stock such as Microsoft, you should also invest in resources stock such as BHP?Billiton.

If the technology sector goes through a slump, the money you have invested in Microsoft will decrease, but the resources sector could very well be going through a peak at the same time and the money you make via your BHP?Billiton investment could even out your loss.

In order to have a diversified portfolio, an ideal starting amount would be R20?000 invested across four or five different shares. Alternately, you can invest in an exchange-traded fund (ETF), which gives you a diversified portfolio through the purchase of a single share.

There are several different approaches that you can use to invest on the JSE:

1. ETFs

These are investment funds that track an index of shares. For example, if you invest in the Satrix Top 40, you are investing in the top 40 companies listed on the JSE. Because ETFs are not actively managed by a fund manager, they carry lower fees. The average ETF fee is about 0.45% a year compared with as much as 2% for an actively managed unit trust fund. ETFs also offer you diversification.

2. Your bank

Several banks now offer low-cost, easy to understand investment vehicles you can use to invest on the JSE. For example, you can invest from R300 a month in FNB’s Share Saver, which gives you access to the top 100 shares on the JSE. The costs are quite low at 0.4% a year, which makes this an ideal entry-level investment vehicle.

If you can afford to invest R500 a month, you could consider Standard Bank’s Auto Share Invest. This product allows you to choose from a range of preselected shares that include the top 100 shares on the JSE. The cost is R25, which works out to 5% of your investment if you are investing R500 a month.

3. Stockbroker

One of the cheapest ways to invest on the JSE is via an online stockbroker. Brokerages typically offer you a trading platform and access to online research and support. You can expect to pay a minimum brokerage fee per trade ranging from R75 to R100 and a monthly administration fee of R50 to R100.

If you want to deal with an individual stockbroker, this service is available to high-end clients and you would need a minimum investment portfolio of R1?million.

Sanlam’s iTrade is the online share trading platform of Sanlam Private Investments.

Benefits include online education and interactive training courses.

You can also make use of a Virtual Trade Simulator, which makes use of a fictitious R1?million share portfolio.

PSG Online has a strong focus on client education and provides free online tutorials.

It also offers a 30-day free trial, which includes access to its trading simulator, research tools and watch lists. This enables you to learn about trading without taking any risks.

After 30 days, you have the option to register and continue until you have enough confidence to start trading with your own capital.

PSG Online also offers investment clients the opportunity to receive a free bimonthly newsletter called The Investor, in which it highlights one share with its pros and cons.

It provides bimonthly webinars that cover a range of topics – from fundamental and technical analysis to investment and trading strategies.

For the more advanced investor or trader, PSG Online offers face-to-face trader forum meetings in Joburg, Pretoria and Cape Town.

FNB Securities is FNB’s stockbroking division that offers full educational support.

Several years ago, FNB’s wealth division merged with online stock broker Barnard Jacobs Mellet, so there is a wealth of experience available to guide you.

The website (www.fnbsecurities.co.za) offers you access to regular newsletters, market research, a full online educational centre, as well as technical analysis of different shares.

Standard Stockbroking has been in the online share trading space for 15 years. The bank’s brokerage offers national educational road shows for clients as well as webinars, YouTube videos and interactive online tutorials.

Nedgroup Private Wealth Stockbrokers offers access to educational material, global and economic analysis and JSE market information in conjunction with Profile Media. Visit www.nedbankonlinetrading.co.za

Making the world go round

What you need in your investment portfolio

To ensure your investment portfolio is balanced and diversified, you should have the following:

»?Blue chip stocks: These are the top 20 companies that have solid track records and are usually household names. Current examples include BHP?Billiton, MTN, Sasol and SABMiller.

»?The golden ticket: Although risky, small companies offer the highest potential for growth over the long term at a low base

cost, this type of company should not comprise more than 10% to 15% of your investment portfolio.

»?Established companies that offer growth: These companies have established reputations but still offer considerable potential for growth and are not yet part of the top 20 on the JSE. Current examples include Kumba Iron Ore and Mondi.

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