Download Five for first-timers - The South African Financial Markets Journal

Five for first-timers
By Idris Seedat
Manager: CSI at the JSE
he world of investment can be daunting. Faced with unfamiliar concepts
and the thought of potentially losing hard-earned cash, many would prefer
to hide their money under the proverbial mattress.
While stashing your cash away may seem like the wise option you’re actually not
doing yourself any favours by not giving your money the opportunity to grow.
Through investing, specifically in the stock exchange, you open yourself up to
some exciting possibilities which could ultimately lead to financial freedom. The
following are the five concepts that every first-time investor should understand
before taking the leap.
Eggs and baskets
Diversification entails investing in a variety of assets with a view to reducing your overall risk should one
or more lose value. Your portfolio can be spread out among multiple investment vehicles such as stocks,
bonds, mutual funds, options and futures, precious metals and real estate. The choice is yours. Ultimately,
you want to avoid putting all your eggs in one basket. Keep in mind though that no matter how much you
diversify your portfolio, there is always an element of risk involved whenever you invest.
Up and downs
In simple terms, volatility refers to the frequency and severity with which the market price of an
investment fluctuates. Higher volatility means that the price can change dramatically over a short period
of time in either direction. Lower volatility means the value changes at a steady pace over time. It is
possible to make money from volatility but shouldn’t be attempted by the first time investor. Experienced,
market savvy investors use volatility to their advantage through buying more of what is cheap and selling
more of what is expensive.
Show me the money
Investing involves fees usually in the form of broker fees, entry and exit costs, financial advisor fees,
performance fees, portfolio management fees and the like. Even though the fee may seem small or
reasonable (just a few percent upfront and annually) it can have a significant impact on the long term
performance of your investment. By law, a full breakdown of all investment fees should be provided
upfront by investment service providers. Should you have any doubts, ask questions and review the ongoing costs on a regular basis.
Eye on the prize
The investment horizon refers to the total length of time an investor expects to hold an investment or
portfolio. The investment horizon is used to determine the investor’s income needs and desired risk
exposure. The investment horizon differs greatly from investor to investor. For example, a young, well
paid professional will have a very different investment horizon from a person nearing retirement.
Your money clone
Compounding refers to the ability of an asset to generate earnings which are then re-invested in order to
generate their own earnings. In essence, compounding makes the money you save today more powerful
than the money you save tomorrow. This means that while you’re working your money is also working
hard for you. Thanks to the benefits of compounding, many an investor has been able to reach their
financial goals.
These and a variety of new investment concepts have been tackled by this year’s annual schools and
universities JSE Liberty Investment Challenge teams which were given an imaginary sum of R1million
each to invest in JSE listed shares from March through to the end of September. Each month, the teams’
performance is tracked and prizes are awarded for winning teams. The Challenge wraps up with a grand
prize ceremony in October.
For more information about the annual competition and how schools and universities take part visit:
schools.jse.co.za
university.jse.co.za
About the JSE Liberty Investment Challenge
The annual schools and universities JSE Liberty Investment Challenge, which this year celebrates 40
years of bringing investment education to South Africa’s youth, kicked off on the 11th of March 2013.
The educational youth programme is aimed at introducing high school learners and university students to
the world of investment and teaches them the fundamentals of investment strategy.
The game requires learners to form teams who will be given an imaginary sum of R1 000 000 each to
invest in JSE-listed shares. Each team’s performance is tracked and measured in a competition against
other teams taking part in the Challenge.
Each month, the best performing school team in each game wins R3 000. There are five top prizes for the
annual winners valued at R60 000 per portfolio in the schools challenge and the university challenge has
three top prizes also valued at R60 000 plus an all-expenses paid trip to an international stock exchange.
The competition ends on the 27th September after which judging will take place and the winners
announced at the award ceremony held at the JSE in October 2013.