How to invest in stock exchange

How to invest in stock exchange

One of the biggest obstacles to investing is lack of knowledge. However, with the advent of online investing, investing in the stock exchange is more accessible, and anyone can do it, says First National Bank (FNB) Share Investing CEO Gusta Binikos.

“Investing is one of the best ways in which to build long term wealth and, with online share trading widely offered to the man on the street, it has become very easy to be an investor,” he says.

Binikos’ tips on how to invest in a stock exchange include:

•    Understand what you are investing in
It is important to have a basic understanding of the company you are planning on investing in. One of investing is buying shares in a particular company that is listed on the stock exchange or an Exchange Traded Fund (ETF), an investment fund traded on the stock exchange.  If you are not confident to choose a particular share, then an ETF is a good way to give you access to a number of diversified shares.

•    Start as soon as possible
The average age of investors using the FNB Share Investor platform is between 24 and 35, showing that young people are taking the initiative to invest in shares.  The sooner you start the greater the period during which you will be earning returns on your investment.

•    Invest regularly
Just as it is important to save regularly the same principle applies to investing. Investing regularly will build your wealth as you are buying more shares.

•    Don’t borrow to invest
It is a big mistake to borrow money to use for investing. Investing is a long term game and nothing is certain, there is a chance that you can end up losing money and owing on your debt leaving you in a very bad financial position.  Use money that you have and invest that rather than being tempted to make a ‘quick buck’ and borrow to invest.

•    Don’t make investment decisions based on emotion
Investing needs a structured approach and good basic understanding of what you are investing in. Spontaneous decisions and investing on a ‘hot tip’ is risky.  Don’t make decision to invest because you like the colour of a company’s logo, or their products or CEO, you need to base your decisions on sound financial performance.

Picking the company means looking at its products, services, industry, and financial strength (“the numbers”).  Doing research regarding the company’s ‘financials’ is easier than ever before, thanks to the current information age.

•    Diversify
There are various sectors on the Johannesburg Stock Exchange (JSE). The four main ones are resources (mining), banking, telecommunications and retail, spreading your risk is a good way to ensure your investment is sound.  Each sector performs quite differently, so if one sector is down another may be up and that’s a great way of spreading your risk, the same applies to ETFs.

•    Don’t try to predict market moves
Shares go up, but they also go down. Trying to predict the direction of the market is difficult, even experts are not always accurate.
Speculating is when investors try and predict what the market is going to do and make profits on its fluctuation.

This is highly risky financial behaviour and unless you are a stockbroker or trader, you should hold onto your investments for wealth creation in its underlying performance such as its long term gain, dividends and interest.

•    Buy and hold for the long term
Holding for the long term is the best investment you can make. It also mitigates market fluctuations, if the market declines, the fact that you continue to invest in shares at the lower price, means that you will benefit when the market recovers.  Consider selling your shares if general economics have changed or if the value of your shares is not appreciating.

•    Be patient
Investing for the long term will let you ride out the unavoidable ups and downs of the market.
Finding a product to investment is not as complicated as you would think.  Most financial institutions will have products already designed with the best returns in mind as the goal.

Photo: The Johannesburg Stock Exchange. Photo: Maggs on Media

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