My son wants to start investing

A Fin24 user's son has received his first pay cheque and he would rather invest it than merely put it in a savings account. She writes:

My son is interested in shares or bonds etc. for investment purposes.

He is still a student and a part-time model and has earned his first cheque from a recent engagement.

I would like him to put some money away as an investment. He is definitely not interested in the savings bank accounts as he feels the interest rates are fairly low.  

He sees himself as a millionaire one day.

Brett Birkenstock of Overberg Asset Management responds:

Your son is right. There is a big difference between saving and investing.

Congratulations to your son for starting to invest at a young age. Warren Buffet bought his first shares when he was 11 years old. He famously remarked that he should have started earlier.

What should he buy?

Because he is young he should look at shares with strong growth potential. At his age, he should not be interested in shares producing high dividends and little growth. He can leave his choice of shares for later.

Before he can start “trading” he must first of all open an “investment account” with a bank or asset manager. Once his investment account is “live”, he can start the exciting process of “trading”.

General advice:

Read the financial press - like Fin24 – focus on company news.

Speak to experts to learn the jargon – phone them. They will always offer help.

To minimise costs, never invest less than around R8 000 in any particular share. Costs are important.

Avoid unit trusts for the same reason – costs are just too high. Exchange Traded Funds (ETFs) are cheaper and have a place in portfolios.

Minimise risk by diversifying your investments across several shares.

Always have a long-term strategy – five years is the minimum.

Lastly, stay away from the so-called penny-stocks. They are only worth a penny because they can’t go lower than a penny.

Which specific shares to buy?

This is a million-dollar question. Over the last 20 years (1997 – 2016) property shares have outperformed the market. R100,000.00 invested in property shares 20 years ago, would be worth R4.1m today; secondly, SA Shares would have grown into R1.5m. Cash would have grown into “only” R611 000.
Start with a good property company - property shares have a place in any portfolio. Thereafter consider diversifying into other sectors.

A closing note: Save as much as you can. Avoid the latest fads like smart phones, watches, cars and so forth. Rather save your money and invest in a growing asset, like a share portfolio.

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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