Why does a financial planner ask so many questions, and what should I be asking a potential financial planner? Um... good question.
Keen to dip your toe in investing – but no idea where to begin? Let’s start with stocks, which can be a valuable part of your investment portfolio. So, what are stocks, exactly?
According to Forbes Advisor, stocks are units of ownership in a company, also known as “shares” of stock or “equities”. When you buy a “share”, you’re purchasing a partial ownership stake in a company, entitling you to certain benefits, like dividends.
Um, rewind – dividends? Yes, depending on the type of stocks you own, companies may share their profits with you via dividends. Investors receive dividend payments quarterly or annually, with payments allocated based on how many shares of the company’s stock you own.
Simply put, a dividend is a distribution of profits by a corporation to its shareholders. When a corporation earns a profit or surplus, it is able to pay a proportion of the profit as a dividend to shareholders. Any amount not distributed is taken to be re-invested in the business.
According to financial guru, author and TV host Nicolette Mashile, owning stocks in different companies can help you build your savings, protect your money from inflation and taxes (nice!), and maximise income from your investments. “Historically, long-term equity returns have been better than returns from cash or fixed-income investments, such as bonds [loans taken out by companies from investors, which gain interest]. However, stock prices tend to rise and fall over time,” explains Nicolette.
So, how should you invest?
“There are different levels when it comes to investing,” says Nicolette. “It depends on the type of investor you are and what your risk profile is. Generally, we classify different investors according to their risk profile in three classifications: low risk, moderate or balanced risk, and aggressive risk,” she says.
Your risk profile, the amount of time you have to stay invested, and how much money you have to invest will unlock different levels of investing. “You might find somebody who invests in individual stocks, somebody who only invests in exchange traded funds (ETFs), somebody who only invests in unit trusts…” A financial adviser can help you to decide what your ideal portfolio will look like.
Now for the juicy part: how to buy shares and make money off them
There are two main ways to make money from shares: you can buy shares individually, or buy them through different financial vehicles/securities (think: exchange traded fund (ETF), unit trust, mutual fund, contract for difference, tax-free savings account). “[Essentially,] you buy shares in a specific company. As the company grows in profit, share prices appreciate and that’s how you make profit from the difference you paid when you bought the shares,” says Nicolette.
When it comes to dividend-paying shares (see above), “companies host an AGM and the board of directors would make decision on whether the company is going to pay dividends based on whether the company made a profit,” explains Nicolette.
Which shares to invest in…
The best place to buy shares is from a broker or a broker platform. Check out www.jse.co.za for a list of accredited SA brokerage firms.
Some examples of platforms you can use:
- Easy Equities: Buy individual listed shares on this easy-to-use online platform. Think: exchange traded fund (ETF), unit trust, mutual fund, tax-free savings account (TFSA), retirement annuity (RA). Simply set up your profile and follow the prompts to start earning moolah.
- Franc App: This cool app allows you to invest in leading cash and equity funds in just a few minutes. You invest in shares through ETFs (think: Satrix Top 40 and Allan Gray Money Market).
- SatrixNow: This web platform enables you to buy and sell ETF shares (trading) directly with no minimum fees.
- Lastly, Nicolette says it’s worth checking out these platforms: Standard Bank Group securities and PSG securities.
Nicolette is the co-host of SA’s first ever financial education family game show Sanlam Moola-Money Family Game Show at 18:00 on eTV.