Investment gurus will tell you there are two ways to make money. One is to work for it. The other is to get it working for you. Research shows that good shares on the stock exchange consistently deliver a higher return than almost any other investment in the long term. However, investing in stocks is not for sissies – because it does carry an element of risk, especially if you approach it like a night at the casino.
The returns do come with some risk. The sheer volume of options to choose from when investing in financial markets means that you have to know your stuff, There are over 400 companies listed on the Johannesburg Stock Exchange, then you have over 800 Unit Trusts, 50 Altex shares, and 53 Exchange Traded Funds . So where do you start?
Without going into a war and peace missive about what the stock market is, for the uninitiated, when you buy shares in a JSE listed company, or a unit trust you own a small piece of it. If the company’s performance is good and the shares become more valuable, you make money. If the company’s performance is poor and the shares drop in value, you could lose money, it’s pretty much that simple. There are in fact 2 ways to earn money on the JSE, the first is through the value of your shares increasing, the second is through dividends. A dividend is a payment made by the company you are invested in. When a corporation earns a profit or surplus, they can either re-invest it in the business (called retained earnings), or they can distribute it to shareholders as a dividend.
Most people own shares without even knowing it. When you put money into a retirement annuity, endowment policy or unit trust the insurance or investment house is investing a portion of your money on the stock exchange. They earn a fee for investing on your behalf. , When you invest directly in the stock exchange, and the shares increase in value, you get all the profit. Your cost is a small brokerage commission of around .4% or there can be a fixed fee per transaction. You can use a broker or trade online, online trading costs less than using a broker but the downside is that you don’t have access to advice.
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