You might have heard a lot about stocks and how they are such a good investment. A lot of South Africans don’t buy stocks mainly because they see the process as something complex and intimidating. Investing in stocks is fairly easy and this is a guide on how to invest in stocks in South Africa.
What are stocks?
Stocks are basically units of ownership of a company, when you buy stocks you are buying ownership of a particular company. Companies issue out stocks for fundraising purposes, this is why it’s rare to see a big company that only has one owner.
As an investor, you buy stocks with the anticipation that the value of the company will increase over time. There are different types of stocks, the stocks that are normally bought on the stock exchange don’t give you a say in the day to day operations of the business.
What is the return on stocks?
The average returns on stocks over the last 100 years is 10% per year. These are pretty good returns; however, they don’t tell the whole story. An investor with the knack for investing in the right companies may see growth of over 50% year on year.
You are likely to get returns of 10% if you invest in indexes or ETFs. A lot of experts advise investing in indexes and ETFs, aiming for returns of just 10% per year. They argue that it’s hard to outperform the market in the long run. This is mostly true; however, you shouldn’t limit yourself to these returns if you feel like you can get better.
The dangers with picking companies to invest in by yourself is that you are not shielded should the company collapse. An index usually tracks hundred or more companies, 1 bad performance by one company will not really have a huge impact on the whole index.
Where can I buy stocks?
You can’t buy stocks directly from the company, you have to buy stocks from a regulated stock exchange. It’s important to note that you can only buy stock from public companies.
South African public stocks are traded through the Johannesburg Stock Exchange (JSE) which is the biggest stock exchange in Africa. It’s where you can buy stocks from famous companies like Sasol, MTN etc. For international stocks; you will have to buy them through other Stock exchanges like the London Stock Exchange or the New York Stock Exchange.
How to buy stocks in South Africa
How to buy stocks from the JSE.
1. Find a broker
You will need to go through a stockbroker in order to buy shares from the JSE. There are multiple brokers to choose from, some charge higher fees than others. We personally recommend using Easy Equities.
Brokers are different, some will advise you and manage your portfolio for you, others will just execute your transactions. It’s important to decide what kind of service you need beforehand. Use brokers that are recommended by the JSE, there is no shortage of scammers in this industry.
Most brokers stipulate a minimum amount that you will need to open an account. They will also provide you with a demo account, that you can use to practice before risking your money in the stock market.
2. Buy shares on the JSE
There is a difference between investing and trading shares. Investing implies that you are in it for the long term, you buy shares with the anticipation that they will grow in value over time. This can take years; trading means that you buy and sell shares on a shorter timeframe. You are basically capitalizing on the fluctuation of stocks on a day to day basis.
You can also buy ETFs or invest in indexes using your broker, this is where investing in stocks gets to be fun. The user interface provided by most brokers is super easy to use and intuitive.
Conclusion
This was a guide on how to invest in stocks in South Africa. Do you have any thoughts or questions? Comment below.
