The most daunting decision a first-time investor has to make is what to buy. Exchange-traded funds (ETFs) can remove a lot of the anxiety around what to invest in. A single ETF investment can give an investor exposure to thousands of shares. If you are new to all of this, understanding ETFs will do a lot to help you along your investment journey.
Tax-free accounts give South African investors the opportunity to invest up to R33,000 per year completely tax free. We explain how these accounts work here. While ETFs take much of the guesswork out of investing, within the tax-free space alone the choice can be overwhelming. How do you know which one is best for you?
Don’t over-think the first one
The beginning of your investment journey is about learning how it all works. We can feel so overwhelmed by everything we have to learn that we avoid taking the first step. We believe that “one day” we’ll understand everything perfectly, and that would be the day we take the leap. However, time is your most important asset when you invest. Investing small amounts in a broad-market ETF isn’t an irreversible decision. Because ETFs invest in so many different companies, you don’t take on too much risk either. If you find that you no longer love the first ETF you bought when you are further along your journey, you can always sell it and buy something that makes more sense to you.
Go broad or go home
A broad-market ETF is an ETF that invests in whatever is going around. It doesn’t focus on a specific type of business. If property is doing well in a market, the ETF has more property. If mining companies do well, it holds more mining companies. When these things change, the insides of the ETF changes without your input. Broad-market ETFs are a way to manage risk, because poor performers get kicked out of the ETF to make way for companies that belong in the Big Leagues.
If you are living in South Africa, the Satrix Top 40 is always an excellent choice. Odds are you’re already spending your money at some of the top 40 companies represented in this ETF. If you’ve been to a Mr Price, Shoprite or Sasol or bought airtime through Vodacom or MTN, you’ve contributed to the bottom line of these top 40 companies. This ETF is the girl next door of ETFs. It’s unassuming, low maintenance and incredibly affordable.
If you would like to spread your investment even more, the Ashburton 1200 invests in 1200 companies across the globe. It’s a cheap and effective way to buy the whole world’s economy.
With platforms like EasyEquities, there are no minimum investment amount requirements. If you have R50 to invest just once, that’s okay. If you can do that every month, that’s even better. If you’d like to dive in with all your savings, also fine! Investing is no longer something more successful, richer people do. You can do it yourself, with the money you currently have. No need to wait for a promotion, a better job or an inheritance.
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