Are you interested in exploring investment opportunities, but unsure where to start? There are countless avenues to explore, and options to suit any investment amount, whether R20 or R20,000.
We compare two investment options; online investing through a digital platform, and DIY investing through a stockbroker, and we outline the pros and cons of each, specifically for first-time investors.
Tip: Only invest what you can afford to lose. Use our budget calculator to plan your finances.
What is online investing?
Online investing refers to digital platforms that enable people to trade without the assistance of a stockbroker. Better-known options include EasyEquities and IG Markets, along with some retail bank offerings.
In addition to convenience - all that’s required is an internet connection and a suitable device – this type of investing offers educational opportunities, generally for free. Webinars, blogs, and research portals are among the resources available to signed-up members; and membership itself tends to be inexpensive, or complimentary.
“Some banking packages offer online share trading with no monthly admin fee. If you don’t qualify for this, shop around,” says author and financial adviser, Sylvia Walker.
Many platforms offer fractional share rights - or partial shares - so there is no minimum investment fee. This means those new to trading, or with small amounts to invest, can start small, and gain first-hand experience of market response to events, notes Cherise Erasmus, certified financial planner at Crue Invest.
She warns, however, that exposure to market volatility at this early stage could result in emotional decisions.
“This, in turn, could result in you exiting the market at inopportune times, and losing when markets recover,” she says.
Before investing, Erasmus says, it’s important to ensure that the platform you’re considering is registered with the Financial Sector Conduct Authority, or the regulatory bodies of the relevant jurisdiction. It must also have adequate security in place.
Further, Erasmus notes, although this method is the best option for those new to investing and/or with little to invest, online investing can be a lonely experience.
What is DIY investing?
DIY investing involves choosing the stock yourself, but using a stockbroker to buy and sell, in exchange for a fee. As with online investing, it’s essential to ensure that your supplier is appropriately registered.
Walker says DIY investing is best suited to larger trades. New investors, and those with little to invest, are better off opting for an online platform, as it is more cost-effective, and requires little to no minimum investment.
“A stockbroker offers personalised advice and will advise you on what to buy and sell, and when,” notes Walker. The range of investment choices will also likely be greater than with an online platform.
Erasmus explains that a broker will offer guidance on movements in the markets, and will follow your instructions as to whether to invest moderately, conservatively, or aggressively. However, they won’t perform a financial needs analysis to check that your investment strategy aligns with your financial goals. For this, you would need a financial adviser’s service.
Before you invest your finances, invest in knowledge
Walker’s advice to new investors, whichever platform they choose, is to first invest in knowledge.
“Buying shares is highly volatile. It’s easy to lose money very quickly if you’re not sure what you’re doing,” she says.
“Jumping in blindly is like gambling,” Walker warns. “If you are not prepared to put in the time to understand the complexities of the stock market, rather invest R500 or R1,000 in a unit trust and let a professional portfolio manager do the work for you.”
It’s equally essential to analyse your lifestyle goals before you put an investment plan in place, Erasmus notes. “Your investment portfolio should be considered part of your overall financial portfolio, so it’s essential that your investment behaviour and financial goals align,” she concludes.
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