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Investing in shares is a marathon

Cape Town - All of us should on a regular basis review our financial position. You’ve heard that before. But perhaps now you should actually take note. And act. Times are not easy and before you know, you could be in deep water.

So, you’re taking note - that means reviewing more than just your income and expense budget but taking an in-depth look at your assets and liabilities.

Carefully consider whether what we have will help us achieve our goals, long- and short term. It is critical that we have cash available for emergencies but it is equally important that we consider our long-term goals to grow our wealth.

Invest in the stock market

You need to decide whether you would like to put together your own portfolio or go with a single trade investor in a predefined list of shares. If the latter is more to your liking, investing in an exchange traded fund (ETF) is definitely the answer.

FNB's Carin Meyer says you can invest in ETFs through your bank, for example, FNB Share Investing "offers you the ability to invest in the top 100 listed companies on the JSE by combining the RMB Top 40 ETF and the RMB Mid Cap ETF”.

“Since the costs are kept to a minimum, investing from as little as R300 per month makes this a great way to invest on the JSE,” says Meyer.

Transaction cost and trade size

The cost associated with investing is still a reality. Consider the following example: Anna’s strategy to grow her wealth is to set aside R500 each month to invest in shares. If Anna invests in a single company every month at R50 per trade, it means that over a 12-month period Anna will invest only 90% of her capital as 10% will go towards fees.

That means that the investment will have to grow by 10% for her to simply break even. However, if Anna saves up the R500 per month and places a single trade of R1 500 every three months, she will reduce the fees and invest 97% of her capital and spend only 3% on fees.

The less capital you invest in the market the smaller the absolute returns are. This illustrates two very important points; firstly, that investing too small amounts can be costly and chip away at your wealth; and secondly, to ensure that the costs of the service provider is in line with what you can afford dependent on your typical trade size.

Be realistic

Reality is that the market goes down from time to time - make peace with it.

It is not always an upward trend over the short term. In the longer term the market always grows but be realistic in terms of the percentage growth as well as the time span of such growth. To expect 30% growth in six months is unrealistic.

Prepare yourself from the start that when there is downward movement you are able to recognise that it is only temporary and you will not be tempted to make hasty decisions that is detrimental to achieving your goals.

When 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.

It is a marathon

Make sure that you are comfortable with the idea that the money invested is not available to you for the near future. The longer one is in the market the better the growth on your capital. Therefore the money used for shares should not be part of your emergency funds.

One can easily deploy an almost “buy and forget” strategy as getting in and out of the market in the short term is not advisable if your goal is long-term wealth creation.

Consider that the JSE All-Share grew by 386% over the last 10 years, a time that includes a major global market correction in 2008/2009.



Source: McGregor BFA

Understand what you are investing in

Don’t get stressed. You just need to understand how the company you are investing in makes its money; what the company’s past performance looks like and what could significantly impact its future growth. This goes a long way in managing one’s own expectations.

Eggs: Many baskets …

Diversify. It is never a good idea to have all your funds invested into a single company or even multiple companies in the same sector of the market. The different sectors in the market react differently to market conditions and spreading ones investments across companies and sectors, spreads the risk.

Start investing yesterday

If your asset portfolio does not include shares, you need to start this as soon as possible. “It is never too early to start investing in shares,” says Meyer.

“The number of investors in the age group 25 to 35 has grown significantly over the years with nearly half of the FNB Share Investing client base in that age bracket.”

The sooner you create the good habit of regular investing the sooner you will start participating in market growth.

When Warren Buffet was 11, he bought his first shares and today he reckons that he started too late.

 - Fin24

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