Five tips for first-timers in the investment game

Idris Seedat (Manager: CSI at the JSE)

The world of investment can be daunting. Faced with unfamiliar concepts and the thought of potentially losing hard-earned cash, many would prefer to hide their money under the proverbial mattress.

While stashing your cash away may seem like the wise option you’re actually not doing yourself any favours by not giving your money the opportunity to grow. Through investing, specifically in the stock exchange, you open yourself up to some exciting possibilities which could ultimately lead to financial freedom. The following are the five concepts that every first-time investor should understand before taking the leap.

Eggs and baskets

Diversification entails investing in a variety of assets with a view to reducing your overall risk should one or more lose value. Your portfolio can be spread out among multiple investment vehicles such as stocks, bonds, mutual funds, options and futures, precious metals and real estate. The choice is yours. Ultimately, you want to avoid putting all your eggs in one basket. Keep in mind though that no matter how much you diversify your portfolio, there is always an element of risk involved whenever you invest.   

Up and downs

In simple terms, volatility refers to the frequency and severity with which the market price of an investment fluctuates. Higher volatility means that the price can change dramatically over a short period of time in either direction. Lower volatility means the value changes at a steady pace over time. It is possible to make money from volatility but shouldn’t be attempted by the first time investor. Experienced, market savvy investors use volatility to their advantage through buying more of what is cheap and selling more of what is expensive.

Show me the money

Investing involves fees usually in the form of broker fees, entry and exit costs, financial advisor fees, performance fees, portfolio management fees and the like. Even though the fee may seem small or reasonable (just a few percent upfront and annually) it can have a significant impact on the long term performance of your investment. By law, a full breakdown of all investment fees should be provided upfront by investment service providers. Should you have any doubts, ask questions and review the on-going costs on a regular basis.

Eye on the prize

The investment horizon refers to the total length of time an investor expects to hold an investment or portfolio. The investment horizon is used to determine the investor’s income needs and desired risk exposure. The investment horizon differs greatly from investor to investor. For example, a young, well paid professional will have a very different investment horizon from a person nearing retirement.

Your money clone

Compounding refers to the ability of an asset to generate earnings which are then re-invested in order to generate their own earnings. In essence, compounding makes the money you save today more powerful than the money you save tomorrow. This means that while you’re working your money is also working hard for you. Thanks to the benefits of compounding, many an investor has been able to reach their financial goals.

These and a variety of new investment concepts have been tackled by this year’s annual schools and universities JSE Liberty Investment Challenge teams which were given an imaginary sum of R1million each to invest in JSE listed shares from March through to the end of September. Each month, the teams’ performance is tracked and prizes are awarded for winning teams. The Challenge wraps up with a grand prize ceremony in October.

For more information about the annual competition and how schools and universities take part visit:

schools.jse.co.za

university.jse.co.za

About the JSE Liberty Investment Challenge

The annual schools and universities JSE Liberty Investment Challenge, which this year celebrated 40 years of bringing investment education to South Africa’s youth, kicked off on the 11th of March 2013.

The educational youth programme is aimed at introducing high school learners and university students to the world of investment and teaches them the fundamentals of investment strategy.

The game requires learners to form teams who will be given an imaginary sum of R1 000 000 each to invest in JSE-listed shares.  Each team’s performance is tracked and measured in a competition against other teams taking part in the Challenge.

Each month, the best performing school team in each game wins R3 000.  There are five top prizes for the annual winners valued at R60 000 per portfolio in the schools challenge and the university challenge has three top prizes also valued at R60 000 plus an all-expenses paid trip to an international stock exchange.

news@ujuh.co.za

  • It is high time for the majority of South Africans to include investment education among their 2014 new year resolutions. The education is obtainable free from the JSE. Once an investor knows his/her way around investing, there is nothing as gratifying as watching your investment portfolo grow. Add to this the satisfaction of accomplishment and one feels on top of the world. There are many Warren Buffetts and George Sorosses among the yet to be educated investors out there waiting for a simple resolution or decision to start investing.The beauty of it is that a prospective investor does not necessarily require a University degree for qualifying as an investor. A simple desire to learn is all that is required. It is worth mentioning that not every investment yields good returns & that there are possibilities of incurring losses in some instances.

    For quite a while now we have been told that South Africans are very poor savers and that is the truth. Add to that the materialistic tendencies prevalent among many of us. I believe that we can turn that around and be ranked amongst the best in the world provided we inculcate a culture of saving which may seem daunting to some given the daily expenses we have to take care of including inflation. If we could overcome the evil system of apartheid nothing else can stop us provided we commit ourselves to being successful as proven in the past.

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