Starting your investment journey does not not have to be a daunting experience. The first step to investing is to get an understanding of what a stock and the stock market is all about.
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Investing in stocks means buying shares of ownership in a public company. Those small shares are known as the company’s stock, and by investing in that stock, you’re hoping the company grows and performs well over time. When that happens, your shares may become more valuable, and other investors may be willing to buy them from you for more than you paid for them. That means you could earn a profit if you decide to sell.
Investing in the stock market is a long game. The stock market is a central place where you buy and sell stocks. The Johannesburg Stock Exchange (JSE) is South Africa’s stock exchange. However, for you to be able to buy and sell on the stock market you’ll need the help of a stock broker.
Learn more about investing through our investment guide series.
How to invest in stocks: Step-By-Step Guide
Basics on how to get started in the stock market even if you don’t know that much about investing righ.
Step 1: Build an emergency fund
Before investing you need to ensure you have set aside money for emergencies and unexpected expenses. This money needs to be fairly liquid – that is, you need to be able to access it quickly and easily.
Your emergency fund should be at least 3 to 6 months worth of your expenses. It’s best to keep your emergency fund in a separate account, so you know it’s earmarked for a specific purpose.
Step 2: Choose how you want to invest
You need to ask yourself how will your money be managed. Do you want a professional, robo-advisor or self-managed?
- Professional: Is for people who prefer experienced people make investing decisions for them and want to spend just few minutes a year worrying about investing. It’s also a good choice for those with limited knowledge of investing.
- Robo-advisors: Is an automated program that manages your money using the same decision process a human advisor might – but at a lower cost.
- Self-managed: Is for people with great knowledge or those who can devote time to making investing decisions.
Step 3: Decide how much you will invest in stocks
The stock market is no place for money that you might need within the next five years, at a minimum. The key to building wealth is to add money to your investment account over time and let the power of compounding work it’s magic.
How much you invest depends entirely on your budget and time frame. The general idea is that as you get older, stocks gradually become a less desirable place to keep your money. If you’re young, you have years ahead of you to ride out any ups and downs in the market. But this isn’t the case if you’re retired and reliant on your investment income.
A good rule of thumb is to have a good diversified investment portfolio and stay invested, even when the market has ups and downs. The best way for beginners to learn how to invest in stocks is to put money in an online investment account, which can be used to invest in shares of stock.
Step 4: Open an investment account
So which kind of account do you want to open? Here are your options:
- Financial advisor can help you make financial decisions that align with your financial goals. They usually chare around 1 percent of your assets annually, with a high investment minimum.
- Robo-advisor can design a stock portfolio that matches your time horizon and risk tolerance. They’re typically cheaper than a human advisor, often a quarter of the price or less. Franc group has a Robo-advisor app that makes investing seamless for you.
- An online broker allows you to buy stock and many other kinds of investments. The best brokers offer no-fee commissions on stocks as well as a ton of education and research at no additional cost. One of the best online brokers in South Africa is Easy Equities.
If you choose to open your account with a robo-advisor or an online brokerage, you can have your account open in minutes and start investing. If you decide to go with a human advisor, you’ll need to interview some candidates to find which one will work best for your needs and keep you on track.
Step 5: Choose your stocks
If you want to invest in individual stocks, you should familiarize yourself with some of the basic ways to evaluate them. Our free investment course series is a great place to start. There we help you learn about investing. And if you want
There are two primary types of costs associated with investment accounts. Management fees, charged by your investment manager, and fess charged by the funds you invest in.
Total fees are usually in the range of 1% to 2%. If you start investing at a young age those fees will add up over time.
Don’t let this discourage you from investing – just understand the costs associated with your accounts and look for low-cost alternatives.
At the important thing is that you get started and you don’t allow fear to hold you back. The sooner you start investing, the sooner you start saving for your goals. Learning how to invest in stocks can be scary. And you have taken the first step to learn how to invest in stocks in South Africa.
We have three free investment courses that will help you gain more knowledge about investing. Visit our course page to enroll in our three investment courses and more. All courses are free.
