FNB gives young South Africans valuable guidelines to investing
A balanced and consistent approach to investing can reap significant rewards in financial freedom and security
The recent downturn in global investment markets has made many aspiring investors nervous about putting their money into the share market. However, despite the regular ups and downs, the consistency of investing is one of the most effective ways of building your personal wealth.
The younger you are when you start, the longer you have to invest and ride out the volatility in the market — which means you have an opportunity to significantly grow your money and beat inflation.
Sebastian Pillay, head of share investing at FNB Wealth & Investments, says time in the market and a well-diversified portfolio are still the most valuable components of any investment plan.
“If you were to ask successful investors what the secret is to their success, chances are the majority will say it’s a long-term approach with quantifiable goals. Which is why starting your investment journey early in life can be one of the wisest moves you can make,” says Pillay.
“As part of diversifying the extra money left in your monthly budget, your short or long-term investments need to be part of your overall money management. This means you shouldn’t dive into the share market until you have put all the other pieces of your personal money management puzzle in place,” says Nicole Smit, product manager at FNB Money Management.
“Before you start your share investment journey, you first need to ensure your finances are in a good position to support your financial goals. This means getting your debts under control or paid off; having a healthy savings balance in place to cover any unforeseen emergencies; and being in a position where you are spending less than you earn on a consistent monthly basis and your investment contribution forms part of your budget,” she says.
There is very little room for emotion in a good investment strategy. You should make investment decisions based on thorough research and a good understanding of the shares and companies you invest inSebastian Pillay, head of share investing at FNB Wealth & Investments
Pillay says once you have achieved this level of financial balance, investing in the share market is a logical step from surviving every month to thriving financially.
He offers some valuable advice to help aspiring young investors get their investment journeys off on the right foot — and keep them on track.
Have many eggs in many baskets
Diversification is one of the most valuable keys to investment success. “You may think tech stocks are the next big thing, but putting all your money into a single sector is very risky. While you may make money when the tech sector does well, you stand to lose a whole lot more when the sector is exposed to a market decline,” says Pillay.
He recommends taking a balanced approach to building your share portfolio, by including a variety of asset types (shares, bonds, property, and so on) as well as investing in shares with different geographical and currency exposure.
“Full diversification can take time to achieve, but if you are able to build a well-diversified portfolio over time, you will protect your overall investment value from large volatility swings which can take time to recover,” says Pillay.
“Exchange traded funds (ETFs) are a great investment vehicle for the novice and the experienced investor. ETFs come in all shapes and sizes and you should consider making this the core of your portfolio which will provide the diversification you need.”
Play the long game
Next to diversification, time in the market or a long investment horizon is another valuable key to the investment process. Investing in shares is not a get-rich-quick scheme. Patience, consistency and self-education is crucial to investing and achieving those long-term goals. Pillay says the best way of doing that is by having a clear investment objective.
“The most successful investors know what they are investing for, and unless that long-term objective changes, don’t fiddle too much with their investment portfolio — even when the market heads south for a time.”
Invest with your head, and your heart
“There is very little room for emotion in a good investment strategy. You should make investment decisions based on thorough research and a good understanding of the shares and companies you invest in. Just because you love watching a particular streaming channel, doesn’t mean it is a good place to put your money.”
However, there is a flip side to this coin, because it is also important to invest in “stories” you believe in, he says. If you have a passion for the environment, social and governance value factors, investing in a company that takes these ethical considerations into account, can be a contribution to making a difference with the investment decisions you make.
Don’t waste your investment money on fees and costs
Investment options have come a long way in the past few years. Rather than having to jump through all sorts of hoops to open a share trading account and then pay significant fees every time you want to trade, you can do it all online, quickly and inexpensively. FNB’s Shares Zero investment platform is a prime example of this convenience and cost-effectiveness.
“The FNB Shares Zero account makes it simple and intuitive to invest in the JSE top 40 shares, ETFs and exchange-traded notes with no monthly account fee or minimum balance required. To promote financial inclusivity, you can now invest by paying zero brokerage on FNB ETFs and ETNs. Which means that money you would have had to spend on fees can now be invested, and compound over the long term.”
While it’s never a good idea to try to time the markets, the recent decline in the prices of most shares means there will be opportunities to invest in many shares at competitive prices.
“If you are an investor who is already practising good money habits, and you’re in a position to invest, now may be a good time to open your FNB Shares Zero account and take that first step on an investment journey that could give you the financial security and freedom you want and deserve.”
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This article was paid for by FNB.