Embracing the benefits of shares

Many are Hesitant or Fearful of Opening a Share Portfolio, but Investing in Securities can Offer Many Benefits

There are many benefits to investing in a direct share portfolio. Here are what I consider to be the top six benefits:

1. Performance: Shares beat inflation and provide capital growth in the long run. Those who stay the course by investing over the long term reap the rewards, as investors benefit from companies delivering on their growth strategies.
   Warren Buffett is quoted as saying, “If you aren’t willing to own a stock for ten years, don’t even think about owning it for ten minutes.”
2. Dividends: Dividends from shares provide a regular income source and can also be reinvested into the market.
3. Compound growth: In addition to benefiting from reinvested dividends, investors in equities benefit from compound growth over time.
4. Market opportunities: Market volatility can work in equity investors’ favour, as they can take advantage of market pullbacks. Staying invested also means investors can benefit when the market rallies.
5. Diversification: Shares enable portfolio diversification, as investors can construct portfolios that span different sectors.
6. Global access: Investors who wish to participate in offshore equity markets can make use of their single discretionary allowance or foreign investment allowance to gain access to global stock exchanges delivering US dollar returns.
   
   

Getting Started

A brief overview of what stockbroking products are available and who these products are suited to locally

To get started, an investor needs to ensure that the platform they choose caters for their present and future needs.

Once you have opened and funded your stockbroking account, there are various products available to you:

1. A local share portfolio provides access to shares and exchange traded funds (ETFs) listed on the JSE.
2. An offshore share portfolio provides access to a range of offshore stock exchanges. The range of offshore exchanges available will be dependent on the platform you select, so make sure you do your homework. The most common offshore exchanges are the New York Stock Exchange (US), Nasdaq (US), the Hong Kong Stock Exchange and the London Stock Exchange (UK).
3. Some platforms offer scriptfin facilities that allow you to borrow against your existing local share portfolio and increase your investment exposure and thus, potentially, your returns.
   
   

Common Mistakes and How to Avoid Them

 

Have a long-term plan

As mentioned earlier, investing isn’t a short-term endeavour. You should only invest if you’re willing to stay invested for at least five years. Over longer periods, returns are more likely to be positive, but your investments will still rise and fall in value. Choose where you’re going to invest, and why, and then stick to it – making small tweaks along the way to rebalance your portfolio as necessary.

Part of the planning process is choosing how much risk you want to take. To stand the test of time, a portfolio should be diversified. This means having a broad range of investments in different countries and industries, and the right mix of shares (portfolio percentage allocation).

Diversification will mean that, as parts of your portfolio underperform, other parts might perform better. Understanding this can help you make decisions and give you peace of mind.

 

Avoid the noise

The news has the potential to influence your investment decisions, so it’s important to recognise that some events are just bumps in the road. If you have a diversified portfolio, some investments not doing as well as others is par for the course.

The same goes for checking your investments. You don’t need to look at them every day, but it is advisable to review them at least every six months. Take comfort in the fact that your investments are for the long term. Stick to your plan and don’t make decisions based on short-term noise.

 

Don’t put it off

There is a saying that investing is about ‘time in the market, not timing the market’. Generally, the longer you’re invested, the harder your money can work for you. Pretty often, the best time to invest was yesterday, but the next best time is today.

 

Conclusion

Adopting a long-term strategy when investing in shares will ensure that you benefit from compound capital growth. Ensuring your portfolio is diversified will assist you in achieving your long-term investment goals, as your portfolio will be less reactive to the small bumps in the road. At best, use these ‘bumps’ to increase your exposure.