Can I, and ordinary woman with limited income, invest in shares on the stock market?
I’ve heard of people “making a killing” on the stock market by investing in big name companies, but how do I know where to put my money?
These are the kinds of questions we all ask ourselves at various times, particularly when looking at ways to add to our long-term wealth. But the stock market is a tricky place and proper guidance is essential before parting with your hard-earned cash.
UNDERSTAND THE TERMINOLOGY
A “share” is a certificate representing one unit of ownership in a company.
The stock market is an organised trading of stocks/shares through exchanges.
When a company is listed, it becomes a public company and its value is traded in shares in the company. The value of the shares is traded daily on the stock exchange and the value of the share is determined by what a purchaser is prepared to pay for that share.
HOW CAN YOU INVEST IN A SHARE?
If you’re clued up on markets and shares, you could instruct a stockbroker to purchase a set of shares on your behalf.
Ask a stockbroker’s advice on which shares to buy.
If you’re new to the game, invest in an equity unit trust — a unitised trust fund which an asset manager manages on your behalf. The asset manager chooses which shares to buy and when to sell them. You’re investing in the unitised pool and therefore indirectly into the company shares.
Mostly, it’s wise to invest in more than one share to diversify your risk, which is greatly reduced if you hold onto the share for at least five years.
If you’re going to buy a few shares, it’s advisable to get assistance from a stockbroker. However, most stockbrokers will only manage share portfolios of really large values and if they’re prepared to manage smaller accounts, the fees are generally quite high.
I’d suggest then that unless you have a fairly large lump sum to invest, you stick with an equity unit trust. These investments require fairly small monthly contributions.
There are several hundred equity unit trusts available offered by top asset managers such as Investec, Allan Gray, Nedgroup and Old Mutual to name but a few, and it’s always advisable that you meet with a financial advisor to source the best equity unit trust for your needs. But don’t leave it entirely up to your advisor to take care of you.
It’s a good idea to take an active interest in your portfolio by monitoring your unit trusts’ performance. Once your fund is selected, you’ll be able to track the shares the fund has invested in, which is a very rewarding process that helps you to understand how investments are made up and how the value of the investment can be affected over time.
Knowledge is power. Through understanding how your funds are invested and what affects their value, you gain confidence and enjoyment from your investments, which will ultimately enable you to have control over them.
And who knows, one day you’ll have enough money and more than enough know-how to be that expert share trader you might have dreamt of becoming.
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