invest correctly on the JSE

How to invest directly on the JSE

Posted  April 9, 2014

The JSE is the South African stock market where all listed shares are bought and sold. Investing on the JSE is a great way to grow your money. We tell you how and share a few tips. 

Where to start?An easy way to invest on the JSE without all the administrative hassle is to use an online brokerage. All the major banks currently offer this service. Almost all online brokerages will offer you free educational seminars or online assistance. Take advantage of this and find out as much as you can so that you are an informed investor.

If you are just starting out, then you should invest in shares in different sectors so that your investment portfolio is diversified. This protects you from losses. For example, if you invest only in mining companies and the mining sector goes through a slump, then you will end up losing money. However, if you also have money invested in telecommunications companies, such as MTN, then your portfolio will be able to withstand the losses from the mining companies.

The benefitsThe good news is that you can invest on the JSE from as little as R500 a month. One of the benefits of investing via the JSE is that listed companies have stringent regulations they have to adhere to. Their financial results have to be fully disclosed at least twice a year and they are answerable to you, their shareholder.

The risksThere are risks, as with any investment. Share prices can move down at any time. If you want an income stream, then you could consider a company, such as Old Mutual, that pays out dividends twice a year to shareholders. A dividend is a sum of money paid to shareholders out of a company’s profits. However, be aware that not all companies choose to pay dividends. You also take the risk of losing all your money if a company you invest heavily in, goes bankrupt.

If you are uncertain about investing directly on the JSE, you could invest in shares via unit trusts, where fund managers make the difficult decisions about which stocks to invest in. Different funds have different targeted returns, for example, inflation plus 6%, so do your research and find a fund that suits your risk profile. If you are conservative and don’t like taking risks, then a balanced fund would be more suitable for you, for example.

Note: Fund managers may charge you performance fees (payable if they reach or exceed the targeted return) as well as management fees. So, investing in unit trusts may be safer but will cost you more than investing directly.

What will it cost?There are associated costs with investing on the JSE. You should check what the monthly administration fees and the minimum brokerage fees are. Typically, the industry average for a monthly administration fee varies between R50 to R100 while the minimum brokerage fee varies between R75 to R100. You pay a brokerage fee for services such as negotiations, sales, purchases and advice on the transaction.

A final word of cautionInvesting in the JSE is not a get-rich-quick option. If you are investing in shares, you should stay invested for at least three to five years to recoup your costs. This also gives your investment time to recover from any market crashes. Be aware of what is happening but don’t make impulsive decisions based on newspaper headlines. The worst thing you can do is to pull out of the market when it crashes. In the words of investment guru, Warren Buffett: “Always buy low and sell high”.

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