Shares, Shares and more Shares
Buying shares is something many people find daunting. They associate the stock market with trading and losing money, with big market crashes and daily noise which can sound exceedingly complicated and volatile. At the end of the month after their house repayments/rent, car repayments and large family expenses many people are reluctant to put money into something which they feel is very risky and requires vast amounts of knowledge.
I agree that you shouldn’t put a significant amount of money into the market (or anywhere for that matter) knowing nothing. I do however recommend that the story shouldn’t end here. Everyone starts with exactly zero knowledge of this subject at some point in their lives, but what is important is that you start a journey of learning. I know that not everyone’s circumstances are equal and it is considerably more difficult for some people to learn this area than others, but it is really something that every single person should do at some point in their lives.
Small amounts every month is a great start as you gain more knowledge, make mistakes (yes you will definitely make mistakes) and slowly start building your wealth, I think you will agree that the best way to learn something is to be practically involved in it. Many online stockbrokers/FSP’s also offer demo investing accounts where you can start to familiarise yourself with the market, its processes and the kinds of fluctuations you can expect from it.
I also agreed that selecting individual shares is an extremely difficult game and for 95% of people this shouldn’t be you main approach, but this is why we have ETF’s. With ETF’s you can build portfolios consisting of thousands of companies by buying only a few products, and these ETF’s should really become the base of your investment portfolio – see random portfolio example below:
Risk is something that bothers most people about the market. They watch as their money bounces around and if they lose some of the value of their capital in a few weeks/months they withdraw it and curse the existence of such a dangerous platform. Others will chop and change their investments until the find something that “isn’t losing them money”, this is a quick way to lose money on the market.
The answer to this problem is just ensuring you have a proper strategy, this means understanding the timelines you have for investing. If you are investing for the very distant future, then why worry about what is happening today or tomorrow and why log on everyday and check “how much money you have made or lost”. There is a direct relationship to risk and reward with investing in shares. This means to avoid significant short term volatility you should be investing for the long-term. It is not the best idea to buy shares if you want to use this money for a holiday next year as the probability of a negative return increase the shorter you are invested for:
These are some of the reasons I love investing in shares or ETF’s:
I am a business owner
By buying shares in a company I am buying a stake in these businesses, this means I am an owner. Now being an owner comes with its rewards, as the profits which these businesses make get distributed to me and other owners in the form of dividends. I am also an owner of all the property and assets which these companies own.
I do not have to sell my stake in the company in order to gain a benefit from it. I can sit back while thousands of people go to work for me every single day by making profit for these companies and therefore making me money.
A multiple business owner
Not only can I be an owner of any local listed businesses, but I also have an endless selection of global companies or funds to choose from. This diversifies me unlike any other investment. Countries, continents, currencies and sectors are no barrier for me to own businesses all across the planet.
Time is on my side
Now although these people go to work for me every day it does not take much effort from my side. All it takes is a well developed strategy and proper management of my own finances and I then have all the time to focus on my own businesses and other sources of incomes.
It doesn’t require much capital
No deposits, lawyers or upfront fees, not only are fees very low (if done right) but I can even buy fractions of shares in companies. This allows me to buy a piece of a company for less than R1.
I don’t need to raise millions of cash up front to buy a controlling stake in a business which I hope is still around in 10 years, but I can slowly but steadily add to my position whenever I choose.
I can leave no questions asked
High liquidity means when the time comes for me to draw down on this capital (as per my investment strategy), I can do it with the click of a button and with very little costs involved. There are fees involved but these fees are as low as they come.
No need to wait weeks/months for a willing buyer as there are hundreds of them every single day. No need to pay a third party huge commission to help me sell or transfer it to someone else.
It is the best performing asset class for the last hundred years
If you want to truly grow your wealth over time then you have got to stop hugging cash (which is often inevitably spent on crazy things like cars) and investing in low risk assets. Inflation will just simply erode and gains you make. Shares and listed property shares are the building blocks for long-term wealth creation. This has been the case for over 100 years and although my ability to tell the future is exactly zero there is no reason to assume this is going to change.
So what are you waiting for? Go become invested.
So what are you waiting for? Go become invested.