The JSE. Listed shares. Index Tracking. Equity and ETFs. That’s a lot of complex terms, right?
Buying shares on the Johannesburg Stock Exchange can deliver attractive returns for individual investors but investing on the JSE can be daunting for beginners.
The complexity and the additional fees charged by stockbrokers or fund managers can also be off-putting.
On the other hand, ETFs can provide a simple and low-fee alternative for direct investors.
Ready to learn more? Good! Let’s get started with this simple beginner’s guide to investing on the JSE.
What is the JSE and how is it ranked?
The JSE, or Johannesburg Stock Exchange, is Africa’s largest stock exchange and is also ranked as the 16th largest exchange globally. The JSE is regarded as one of the most sophisticated stock exchanges in the world – and as of August 2020, its market capitalisation was USD1,005 billion. The role of the JSE is that of regulator, to ensure the market operates in a transparent manner thereby protecting the interests of investors.
As the ‘engine room’ of the South African economy, the JSE provides convenient access to investors to buy and sell multi-asset shares, also known as securities.
How does the JSE work?
Basically, companies list on the JSE to raise capital by selling shares via public offers or rights issues. These listed shares can then be bought and sold by personal investors or traders, professional investors or traders and companies. In recent years, the JSE has become more accessible to personal investors through its online platform, providing a convenient means to buy and sell on the stock exchange.
What are the benefits of investing on the JSE?
- A primary benefit of investing on the JSE is that investors get efficient exposure to Equity as an asset class, through listed shares.
- A further benefit of investing on the JSE is that it provides a highly-regulated trading environment, and therefore offers a higher degree of transparency and protection from fraud than one might find when investing in a private company.
- Due to this regulation, the JSE provides beginners who are starting their investment journeys with a secure means to buy shares.
- The JSE also provides a vehicle for pension funds and other retirement savings funds to grow their investment.
However, what’s crucial to understand is that unlike depositing your savings into a bank account where your capital is guaranteed, when you buy shares through the JSE (or any other stock exchange), you not only stand to gain, you also run the risk of losing some – or all – of your capital if the market or the company you have invested in takes a bad turn.
That’s why it’s important to understand your tolerance for risk and make informed decisions when choosing your investments. A good financial advisor can help you navigate these hurdles and assist you in building a risk-balanced portfolio.
How do you invest on the JSE?
If you want to invest on the Johannesburg Stock Exchange, there are three common ways you can go about it. You can:
- Direct DIY – open an online stockbroking account and start trading
- Direct Broker – use a stockbroker to buy and sell shares on your behalf
- Indirect via Asset Manager – typically in the form of a Unit Trust and the Asset Manager makes the decisions
- Indirect via index tracking fund – instead of direct DIY or using somebody else to make decision on your behalf, buy a single instrument that tracks an index.
What’s the best way for individuals to buy JSE shares?
When it comes to buying shares, there is no ‘best’ way because each method has its merits and fulfils different objectives.
However, for first-time individual investors, index tracking funds offer a simple, low-fee option that is worth consideration.
What are the options when buying an index tracking fund?
There are two options you can choose from when buying an index tracking fund:
- Exchange Traded Funds
- Unit Trusts
An Exchange Traded Fund (ETF) provides a basket of shares that are benchmarked against a certain market index.
ETFs are traded on the stock exchange, and are easily bought and sold at any time of the trading day, just like shares.
With ETFs you will also always know what the underlying assets are that make up the fund which is not the case with index tracking funds.
And your ETF will never underperform against the benchmark because the ETF tracks indices such as the JSE Top 40.
An Index Tracking Unit Trust tracks an index, like an ETF, but the key difference is that the trading is only done once a day, so there will be a lag between the time at which a buy or sell order is submitted and when that order is executed.
Ready to make an index tracking investment?
1nvest offers the widest range of index tracking Exchange Traded Funds (ETFs) and Unit Trusts in South Africa.
Our award-winning solutions are backed by Africa’s largest financial institution, the Standard Bank Group (comprising Standard bank, STANLIB and Liberty).
Ready to start investing?
Let’s get you registered.