In a volatile economy, wrought with change, inflation and changing socio-economic spheres choosing the right shares can be quite daunting, especially if you not sure of the ins and outs of the stock market.
“It is often assumed that we should invest in shares with the best performance which will ensure greater returns. The stock market if understood correctly can lead to greater wealth creation; but if misinterpreted can see major losses as well,” says Aneesa Razack, CEO of Share Investing at FNB Wealth and Investments.
Outside factors together with the economics landscape play a major role in influencing the state of the stock markets in South Africa and globally. Razack, explains that besides the fundamental analysis of financial statements, management, competitors, markets where companies operate and competitive advantages; the following factors should also be taken into consideration when looking to invest in stocks and shares:
- Inflation rate: A high inflation rate results in more investors resorting to shares. Just like companies, stockbrokers constantly monitor levels of inflation as it effects goods prices resulting in a decline of revenues and profits, and the economy slows for a time until a steady state is reached.
- Interest rates: High interest rates ensure that people make investments in interest rate-bearing instruments and not in shares.
- Political uncertainty: Foreign companies do not put money into troubled countries.
- Rumors and speculation: A favorable rumour can increase a share price and a non-favourable rumour can decrease a share price quite easily.
- Government actions, taxes, laws and regulations largely influence the market that we operate in.
“An understanding of your budget is vital in determining how much you can invest towards shares. With the value of compound interest, shares are always a great way to ensure that you are financially secure in the long-term,” concludes Razack.