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How to invest in shares?

We often leave the thought of investing for another day or another year. People assume that investing in shares is for the wealthy or you need to have experience to invest in the stock market.

Just like savings, it’s a good idea to start investing in shares at any age. “The best way to understand the stock market is to manage your own portfolio. This initial step will help you in understanding the process and how the shares market works,” says Aneesa Razack, CEO of Share Investing at FNB Wealth and Investments. “This money can then be used for your long-term goals like your retirement or for your child’s education.”

It’s important to note that you will not be risk-averse with this type of investing. If you have no risk tolerance then stocks might not be for you. The stock market demands patience, if you are going to pull out during every ‘bear’ (negative) period then you’ll never be invested for the ‘bull’ (positive) times. “As an alternative to individual shares, consider unit trusts or exchange traded funds (ETFs). These collective investments cushion the risk somewhat while still allowing you to grow your money,” explains Razack.

Getting started is always difficult, but Razack suggests the following simple tips that will help you get started:

  1. Start investing now, don’t wait. The sooner you start to invest, the better. Time is an investor’s best friend, because it gives compounding interest and returns a chance to work for you. The earlier you start the less you should invest to reach your goal.
  2. Do some research. Before you buy a share, find out everything you can about the company, its management and competitors, its earnings and growth potential.
  3. Invest regularly. Investing is not a once-off exercise; it is something that you must continue doing throughout your life to be able to get good returns on your investment
  4. Start with the Top 40. When you start investing in shares, it is advisable to first focus on buying shares that form part of the JSE Top 40. These shares are generally less risky over the long term and can provide good returns if you buy and hold.
  5. Diversify your share portfolio. Spread your investment across different companies and over different sectors. The biggest risk in investing is putting all your eggs in one basket. With FNB Share Investing you can invest in both shares or directly in gold with Krugerrands and build a diverse portfolio for yourself.
  6. Be patient.  Don’t expect to be right all the time. Investing for the long term will let you ride out the unavoidable ups and downs of the market.

“Investing in shares can help you reach your financial goals faster and ultimately benefit you in the future. Ensure that you are aware of your environment and the risks associated before taking the step to invest in shares,” concludes Razack.