You may think you need a lot of money to start investing on the JSE, but even if you start small your money can grow over time. If you are able to save a little every month, instead of leaving your money in a jar or in your bank account you can use it to buy shares.
An easy and affordable way to start investing for the first time is to use the JSE Tax-Free Savings Account (TFSA). Your money can grow faster in a tax-free savings account compared to a regular savings account at the bank. This is because this account allows you to invest in shares which should, over time, help your money to grow faster than the interest you would have earned if you left it in the bank. But the biggest advantage of a Tax-Free Savings Account is just that – you don’t have to pay any taxes when your money grows. When you take your money out of a Tax-Free Savings Account, no taxes are charged on the interest, dividends/profits or capital gains of your investment.
You only need R300 per month to start investing in TFSA, but you can stop making this monthly payment whenever you choose to. If you cannot keep up this monthly contribution, the money you have already invested can stay in your account and continue to grow. You can invest up to R33 000 a year in a TFSA, but no more than R500 000 in your life time. You can withdraw from your investment at any time. Withdrawing funds, however, may prevent you from reaching your investment goals, and will use up part of your lifetime limit for tax-free savings.
You may think you need a lot of money to start investing on the JSE, but even if you start small your money can grow over time.
The JSE TFSA invests in shares through a product called an Exchange Traded Fund or ETF. ETFs allow you to invest in shares on the JSE, but instead of buying shares in one company they allow you to buy shares in a group of companies. ETFs do this by following a stock market index, like the JSE Top40 Index or the JSE All Share Index. An index puts together a group of companies to show how their share price is moving together or on average. One company may do well and its share price may go up, while another does poorly and its share price goes down. An index puts all of these companies together so that companies doing well can cancel out the companies doing badly. This is known as diversification – you could also think of it as ‘not putting all of your eggs in one basket.’
ETFs make investment easier for ordinary people who do not have all the knowledge about financial markets and companies which professionals in the investment industry have. They also have lower fees than other investment products, which makes them cheaper than other products. But remember, investing bears fruit over time and is not a way to get rich quick.
Beware of anyone who promises to invest your money and so that it will, for example, double in a few months. Be patient and you will find that the sooner you start investing, the more your money will grow.
For more information, visit www.jse.co.za