05 Sep 2013
One of the biggest obstacles to investing is lack of knowledge, however, with the advent of online investing, investing in the stock exchange is more accessible, and with a few basics anyone can start up their own investment portfolio.
“Investing is one of the best ways in which to build long-term wealth and, with online share trading widely offered to the man on the street, it has become very easy to be an investor,” says Gusta Binikos, chief executive officer of FNB Share Investing.
There are a few basic tips for beginners wanting to start investing.
1. Understand what you are investing in
Investing is basically putting your money to work in various ways, one of which is buying shares in a particular company that is listed on the stock exchange or an Exchange Traded Fund (ETF), an investment fund traded on the stock exchange.
“It is important to have a basic understanding of the company you are planning on investing in,” says Binikos.
If you are not confident in choosing a particular share, then an ETF is a good way to give you access to a number of diversified shares.
However, when buying shares or an ETF, you require a basic understanding, so make sure you read up on what you are investing in, explains Binikos.
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 has the company been performing over the last few years. Are sales healthy and increasing from the previous year? Does the company compare favourably in these categories versus other companies in the same industry?
2. Start as soon as possible
The average age of investors using the FNB Share Investor platform is between 24 and 35, showing that young people are taking the initiative to invest in shares.
“The sooner you start, the greater the period during which you will be earning returns on your investment,” says Binikos.
Typically saving would start in the form of a cash investment and ideally, one 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, one should also look at the other investment classes.
“Property must form part of your investment strategy as well as investigating retail bonds, gold and shares or ETF,” says Binikos.
3. Invest regularly
Just as it is important to save regularly the same principle applies to investing.
Investing regularly will build your wealth as you are buying more shares.
“You can ensure that you invest regularly by having a monthly debit order come off your account,” says Binikos.
4. Don’t borrow to invest
“It is a big mistake to borrow money to use for investing,” says Binikos.
Investing is a long-term game and nothing is certain, there is a chance that you can end up losing money and owing on your debt leaving you in a very bad financial position.
Use money that you have and invest that rather than being tempted to make a ‘quick buck’ and borrow to invest.
5. Don’t make investment decisions based on emotion
Investing needs a structured approach and good basic understanding of what you are investing in. Spontaneous decisions and investing on a ‘hot tip’ is risky.
“Don’t make the decision to invest because you like the colour of a company’s logo, or their products or CEO, you need to base your decisions on sound financial performance,” says Binikos.
Sometimes the most boring company can be a good, solid performer. Picking the company means looking at its products, services, industry, and financial strength (“the numbers”).
Doing research regarding the company’s “financials” is easier than ever before, thanks to the current information age.
There are various sectors on the Johannesburg Stock Exchange and the four main ones are resources (mining), banking, telecommunications and retail, and 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, and the same applies to ETFs, he says.
7. Don’t try to predict market moves
Shares go up, but they also go down. Trying to predict the direction of the market is difficult; 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,” says Binikos.
He says this is highly risky financial behaviour and unless you are a stockbroker or trader, you should hold onto your investments for wealth creation in its underlying performance such as its long term gain, dividends and interest.
8. Buy and hold for the long term
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.
9. Be patient
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, he adds.
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