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Investing in shares

Tatenda asks: I am fortunate enough to be getting a 13th cheque in a few days and would like to invest this money before I spend it all. Where I can invest a lump sum of R22 000? Should I look at buying one share like MTN or BHP or spread the risk over several shares? What other ways can I invest this money for the long term?

Maya replies: You need to decide whether to buy individual shares or to invest in a fund.

With a lump sum of R22 000 you could look at buying into two or three companies and this could form the basis of your share portfolio.

Over time you could add to it to build up your own share portfolio. You need at least R5 000 to buy a share otherwise it is not cost-effective. A good quality blue chip share portfolio can provide you with an income in retirement through dividends and looks a lot like the portfolios of large asset managers but at a lower cost.

The downside, however, is that you will not have sufficient diversification for a while, which increases your risk substantially.

If you do want to start investing directly it may be better to start off by investing in an exchange-traded fund (ETF) on the JSE like Satrix RAFI or Satrix 40.

You would buy the fund like a normal share on the JSE but the underlying investment is a basket of about 20 to 40 shares depending on the index.

So by investing in just one share you receive exposure to some of South Africa’s top companies.

Once you have grown this to a significant size (about R100 000) then you could look at creating your own portfolio. (See related articles for more information on ETFs).

Investing with smaller amounts
Some of the banks also offer share trading where you can buy shares in lower amounts and build up a share portfolio.

With Standard Bank’s Auto Share Invest (ASI), every month you invest R500 or more and on 25th of each month Standard online will buy the shares you have chosen from their range of selected shares, which includes the 40 largest companies listed on the JSE. The costs are around R25, which works out to 5% on a R500 investment. This means that the share price must first increase by 5% before you are making money.

FNB Share Builder also gives you exposure to a basket of shares. There is a monthly fee of R17 and the fee to buy shares is 2% with a minimum trade of R50. Be aware of that monthly fee. On a portfolio of R5 000 you would be paying around 4% a year in fees. On a portfolio of R22 000 the monthly fee would work out at 1%, which is far more cost-effective.

If you want to become an active investor on the JSE it is advisable that you attend Online Share Trading’s educational seminar to familiarise yourself with the markets. It is free and you can contact them 0860 121 161 or email [email protected] for details and venues

Read more news, blogs, tips and Q&As in our Smart Money section. Post questions on the site for independent and researched information.

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Maya Fisher French
Guest Author

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