The problem with being a first-time investor on the JSE is that you generally need a lump sum to invest in order to make it financially viable. With minimum brokerage fees of about R100 each time you buy and sell, you would need to buy R5Â 000-worth of a single share in order for it to be cost-effective, and then you would have exposure to only one share.
This means that you would have to save money each month until you had enough to enter the share market. You could do this through a savings account, but you would not have exposure to the market while you were saving and could miss out on opportunities.
If you want to start small and build up your portfolio, there are two products that allow you to invest directly in the stock market through a monthly debit order.
The first is through the Satrix Investment Plan, which allows you to invest R300 a month through a debit order that is used to purchase shares in Satrix securities. The second is Standard Bank Online Trading’s new Auto Share Invest (ASI), which allows you to buy into a specific share with a debit order of R500 a month at greatly reduced brokerage charges.
Satrix Investment Plan
Satrix is an exchange traded fund (ETF) that tracks the JSE’s indexes. An ETF is an entire index or basket of shares structured so they can trade as a single share, which is listed on the stock exchange. In the case of Satrix, it offers five different securities.
Satrix 40 tracks the FTSE/JSE top 40 index, which means you are invested in the 40 largest companies listed on the JSE.
Satrix Indi tracks the JSE industrial 25 index, which means you are invested in the 25 largest shares listed under the industrial sector.
Satrix Fini tracks the financial 15 index, again investing in the top financial sector shares.
Satrix Resi 20 tracks the resources 20 index and Satrix Swix 40, which is similar to Satrix 40 in that it tracks the Top 40 index, is re-weighted to lower exposure to resources.
The benefit of Satrix is that through buying only one share you have exposure to South Africa’s largest companies, giving you share diversification on a relatively small investment.
As Satrix is a JSE-listed security, it can be purchased through a stockbroker. But Satrix also offers an investment plan that allows investors to invest monthly for a minimum debit order of R300 a month.
It is important to note that this investment plan is not managed by a stockbroker and you have to apply to the Satrix Investment Plan, which has a management company that purchases the shares on your behalf.
The manager purchases or settles Satrix securities on behalf of investors, manages the receipt of dividends and reinvestment of dividends into Satrix securities, sends out statements to investors and arranges annual tax certificates. The manager takes an annual management fee for doing this on behalf of the investor, but bulking of orders does ensure that the upfront brokerage charges are extremely low.
For the majority of retail investors who invest less than R300Â 000 in Satrix, the Satrix Investment Plan has, on average, lower costs than using a stockbroker unless the investor keeps his or her Satrix securities for an extended period of time. In which case, the annual management charge needs to be taken into account.
The Satrix Investment Plan charges 0,1% brokerage fee plus 0,25% uncertified securities tax. Added to this is a flat upfront fee of 0,3% with a minimum of R2,50. On a debit order of R300 you would pay R3,05 to buy Satrix and 30c to sell; however, there is an annual management fee of 0,8%, which on a lump sum of R5Â 000 would cost you R40 a year.
Auto Share Invest
Through Standard Bank Online’s Auto Share Invest product you can invest in a share for as little as R500 a month.
The one limitation is that you have to select your share from a pre-selected list of well-known South African shares listed on the JSE, including South African Breweries, Pick ‘n Pay, Standard Bank and Sasol. There are 21 shares you can choose from.
Like the Satrix Investment Plan, you are able to invest a small amount monthly, but these investments are done through a stockbroker.
This means that you can build up a portfolio with the stockbroker and hopefully reach a stage where you can start actively trading.
Unlike the Satrix Investment Plan you are buying individual shares. While this has advantages it also means that you do not have a wide range of diversification and all your money is literally in one share.
Auto Share Invest does, however, allow you to change the shares you are invested in. For example, if you have been investing in Sasol and have decided to take your profit and move into Pick ‘n Pay, you can simply sell Sasol and buy Pick ‘n Pay.
But unlike a straightforward share purchase, share sales are only done on a weekly (not daily) basis and you cannot select the exact share price — you receive the average for the day — so it is more for the longer-term investor.
If you invest through this product the brokerage fees are greatly reduced. Standard Bank Online Share Trading’s usual minimum brokerage fee of R89 is reduced to a minimum of R25, which equates to 5% on a R500 investment. This works on a sliding scale and a regular investment of R5Â 000 would have a brokerage fee of R70 or 1,4%.
There is no monthly account administration fee, but R25 is levied on accounts that are inactive for 60 days, that is, where there are no share purchases or sales.
Because Auto Share Invest is housed within Standard Bank Internet banking, investors are able to register through its website.