Top 10 tips for investors

2013-10-06 14:00

One of the biggest obstacles to investing is a lack of knowledge. But with the advent of online trading, investing in the stock exchange is more accessible; and with a few basic tips to get you going, you can start up your own investment portfolio. Gusta Binikos, the chief executive of First National Bank Share Investing, offers the following:

Understand what you’re investing in

1 Investing is putting your money to work in various ways, one of which is buying shares in a company listed on the stock exchange or an exchange traded fund (ETF), an investment fund traded on the stock exchange.

Make sure you have a basic understanding of the company. If you are not confident to choose a particular share, then an ETF is a good way to access a number of diversified shares.

Whether it is an individual share or a basket of shares, do your homework and research companies before you buy into them.

Companies’ financial information is easily accessible and the more ways you can look at a company, and see value, the better.

Look into facts such as how the company has been performing over the last few years. Are sales healthy and increasing? Does the company measure up favourably compared with other companies in the same industry?

Spontaneous decisions and investing on a “hot tip” is risky. Base your investment decisions on sound financial performance. Sometimes the most boring company can be a good, solid performer. Picking a company for your investment portfolio means looking at its products, services, industry, and financial strength.

Start as soon as possible

2 The average age of investors using the FNB Share Investor platform is between 24 and 35, showing young people are taking the initiative. The sooner you start, the greater the period during which you will earn returns on your investment.

Typically, saving should start in the form of a cash investment. You should have at least three months’ salary saved to cater for rainy days and unplanned events.

Once you have invested in an interest bearing account or a cash investment, you should look at the other investment classes. These include property, equity or shares, and bonds. You can invest in an RSA Retail Bond to access the bond market.

Invest regularly

3 Investing regularly will build your wealth as you are buying more shares. The best way to ensure regular investment is by setting up a monthly debit order – think of this as paying yourself first.

It also removes the temptation to spend your money and then find you have nothing left in your bank account to invest at the end of the month.

Don’t borrow to invest

4 The cost of debt is frequently high. Use money that you have to invest rather than being tempted to make a “quick buck” and borrowing to invest.

Don’t make investment decisions based on emotion

5 Investing is for the long term. This means you need to have the fortitude to stick with your investment.

History shows although markets fall, if you keep an investment for the long term, you will see positive returns.

Don’t panic when you see a share price start to fall – stay calm in the knowledge you are investing for the long term and price movements are inevitable during that time.

Diversify

6 There are various sectors on the JSE. The four main ones are resources (mining), banking, telecommunications and retail. Spreading your risk is a

good way to ensure your investment is sound.

Each sector performs quite differently, so if one sector is down, another may be up and that’s a great way of spreading your risk. The same applies to ETFs.

On a larger scale, your investment portfolio should eventually be diversified with investments not only in equity or shares but also in property, cash and bonds.

Don’t try to predict market moves

7 Shares go up, but they also go down. Trying to predict the direction of the market is difficult to near impossible; even experts are not always accurate. Speculating is when investors try and predict what the market is going to do and make profits on its fluctuation. This is highly risky and unless you are a stockbroker or trader, you should hold on to your investments for wealth creation in its underlying performance such as long-term gain, dividends and interest.

Buy and hold for the long term

8 Holding for the long term is the best investment you can make. It also mitigates market fluctuations – if the market declines, the fact that you continue to invest in shares at the lower price means that you will benefit when the market recovers.

Consider selling your shares if general economics have changed or if the value of your shares is not appreciating over an extended period.

Be patient

9 Investing for the long term will let you ride out the unavoidable ups and downs of the market. Finding a product to invest in is not as complicated as you would think. Most financial institutions will have products already designed with the best returns in mind as the goal.

Start small

10 Invest in small amounts initially until you build up your confidence. Once you have figured out how stock markets work and you have gained sufficient knowledge to be confident in your investment choices, you can increase the amount of money you invest in shares.

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