Investing R3 000 in ETFs

A Fin24 user wants to try something different when investing a lump sum of R3 000. He writes:

I need some expert advice about where to put a bit of money I made doing an extra job. It is R3 000.

I'm already with Discovery Invest, Allan Gray and FNB investments. I'm wanting to try something different to what these companies offer. A way of learning more about investments.

Thanks, I would like some help.

READ: Investing in ETFs for kids' education

Mike Brown of ETFSA responds:

More and more investors are looking to set up portfolios of ETFs. ETFs are index tracking securities that are listed on the JSE and provide the total returns of the major indices in local and offshore markets.  

A big benefit of ETFs is that you can select your own portfolio allocation, whereas in a unit trust, the asset manager of the unit trust selects the portfolio on your behalf.

With ETFs you can choose your own portfolio allocation to different asset classes and market sectors. There is no better way to get to know and understand investment markets than to do your own research, select your own portfolio and then monitor and manage this portfolio yourself going forward.

READ: The investment objective of the Satrix 40 ETF

Is investment of this do-it-yourself (DIY) type not risky?

Well, not necessarily. If you allocate your investment across a whole series of different asset classes, you create the balanced portfolio effect sought by most multi-asset unit trust managers, but at a fraction of the cost.

An example of a balanced portfolio, for a relatively small investment of R3 000 is shown below:

(Source: etfSA)

Allocate R500 of your R3 000 lump sum to each of these 6 ETFs and you have exposure to:

- The top blue chip shares on the JSE;

- A world index of the major companies in the top 23 biggest global stockmarkets;

- Exposure to China, the world’s fastest growing major market, which will soon overtake the US as the world’s biggest economy;

- Reduce your risk by investing in inflation-linked bonds, which rise with the inflation rate and protect the real value of your money; and diversify into listed property, the so-called fourth asset class.

You can invest in this portfolio through the etfSA Investor Plan, at a total cost of 0.1% to buy the securities on the JSE (R3) and a 0.7% per annum management fee deducted over a 12 month period (R21 per year).

All the information you need on each of these and all the other 70 ETPs listed on the JSE, is on the website.

You can monitor your portfolio performance on a daily basis through the “watchlist” facility on the website and use tools like the graph packages and calculators on the site to help you research and monitor your portfolio choices.

In this internet age, DIY investment is accessible to everyone and should be considered for, at least part of, an investment portfolio.

ALSO READ: Unit trusts vs ETFs

Disclaimer: Fin24 cannot be held liable for any investment decisions made based on the advice given by independent financial service providers. Under the ECT Act and to the fullest extent possible under the applicable law, Fin24 disclaims all responsibility or liability for any damages whatsoever resulting from the use of this site in any manner.

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