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Tuesday, 23 July 2019

The Easy-est Way To Start Investing

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Time to start watering your financial
freedom garden. 
One of the more common questions I receive is of the variant “I want to invest my money, where do I begin?”

Boy do I love this question!

The reason it’s one of my favourites is because it shows a person’s willingness to be proactive and to try forge a better financial future for themselves! And this means they are already off to a great start!

So of course I happily answer, and can’t help but smile thinking that if this person follows through and starts their investment journey, they would have taken the most important step on their path to financial freedom - and that is to start!

But then I started thinking…

What about those who want to start investing in shares or ETFs, but who do not end up asking how? What about those who buy into the BS the industry likes to spin about the the immense complexity of investing and how you need to partner with a highly expensive skilled professional to get it right?

While they wade through the confusion that has been spun, these people are wasting away precious months and rands which could be used to fuel their compounding machines. Time is probably the most important factor when it comes to investing, and these people are spinning their wheels because of a perceived complexity that the industry has spent millions to try create (remember you can’t charge a high fee for simplicity…)

So this blog post is for all of those who would love to start, but believe investing is complicated. It is for all of those who think you need a mountain of money before you can begin. It is for all of those who are fearful that the industry is full of con men who just want a slice of your hard earned money (it sometimes is). And it is for all of those who don’t quite understand how it all works.

This aim of this article is to help those who want to start building an investment, and experience the joy and freedom which compounding investment returns can bring you.

This article will allow you to go from knowing next to nothing, to buying your first investment. You going to learn about investment/brokerage accounts, the best place to open one, how you can practice investing, and what you can do when you are ready to put some actual money into an investment.


The really great news is that investing isn’t nearly as complicated as what all the fee charging people make it out to be! After this, I am sure you will agree!

Okay, let's go...

Where To Find The Good Stuff



Most of us know where to find bank accounts. We know how to transfer money in, and we know how to get money out. In other words we know how to save. And while saving is great, it only preserves your money – it doesn’t really grow it. You only experience the awesomeness of having your money grow and start working for you when you invest.

And investing means you need to start looking at a different asset class – a.k.a. shares, a.k.a. stocks, a.k.a. equities (typical of the investment industry to have 3 words for the same thing!)

Now you cannot buy equities in a normal bank account, you need to go to the Johannesburg Stock Exchange (the cool kids call it the JSE) for that. That is just how it works.

The JSE is like a shopping mall for equities – but unfortunately this mall is by invite only. So me and you can’t just rock up there and say give me some shares please. Nope, there are only certain licensed people that are allowed to do the “shopping” at the JSE. These people are called brokers (or stock brokers).

So in order for you to buy JSE goodies, you are going to need to use a broker. The broker will then charge you a small fee to go and shop on your behalf (known as brokerage).

Broken Brokers

I now need to point out that not all brokers are created equal.

Firstly some of the broken brokers charge you a lot of money whenever you buy equities. – in other words, some brokers are cheap, and some are expensive. And since all brokers end up doing the same thing (i.e. allowing you to buy some equities) it makes no sense to go with a broker whose fees are more.

Some of the broken brokers also charge you a monthly account fee. But if you don’t need to pay that, then why should you? All you need is for someone to buy you some equities – if a broker can do that without a monthly fee, then great!

And then some of the broken brokers require a minimum investment amount (ranging from a few thousand rand all the way to "hey, I’m not Patrice Motsepe!"). These brokers enforce their minimums by either making it a rule, or by charging a minimum brokerage (for example they will charge you a minimum of R90 per purchase - which means if you wanted to buy some equities for R100, you would actually only be investing R10). Ideally we should be using a broker that has no minimums with regards to the amount you are allowed to invest, or the brokerage they charge.

So here’s our little check list on how to find a broker that isn't broken:
  1. Charges low brokerage
  2. Has no monthly fees
  3. Has no minimums
Hmmm... If only there was a broker who ticked all three boxes…

Well lucky us – there is!

The Best Broker In The Land



Man I love EasyEquities! (Don't worry you are free to click the link knowing that I have no hidden agenda - I am not affiliated to EasyEquities in any way, and I don't get any benefit if you use them. They are just, quite simply in my opinion, the best broker for D.I.Y. investing in South Africa. I personally use them and always recommend them to people.)

EasyEquities offer the ultimate broker trifecta of:
  • Cheap brokerage (cheapest by most metrics)
  • No monthly fees
  • No minimums
And on top of this they offer you the whole buffet of investment options. Perfect!

And then something I really, really like about them is that they give you a free Demo account. And this is what I tell anyone who wants to begin investing – head on over and sign up at EasyEquities so you can use the demo account.

Practice Makes Perfect



So that is the first thing we are going to do – open a no obligation, no strings attached, no risk, demo account at EasyEquities.

(Before we begin, just something to keep in mind – the screenshots in this article will likely change. So just keep that in mind if you are reading this article a few months after it was published. But while the screens may look different going forward, the principles and procedure should remain unchanged.)

Right, so if you haven't already done so, let's head on over to www.easyequities.co.za . When you get there click on the Register button (I have very kindly marked it with a green arrow below).


You will then be shown a sign up screen. Fill in your details.


When you done, click next and you will be shown another screen asking for a little more info (don’t worry, after this you are done)


Do your thing and then click next. Finally, before the fun really begins, you just need to confirm the Ts and Cs and click Register.


Woohoo! You will now be shown some peeps who look almost as happy as you are because you have just pretty much opened an investment account! Nice one!


Let me just quickly bore you with some formalities before we get to the really cool part…

Important to realise is that, as with all banking and investment accounts in South Africa, you need to FICA before you can transact. But don’t worry about that for now, you can sort it out at a later stage. We are just interested in the demo account at the moment so that you practice your investing skills, and that means no FICA is required!

So click on the "Skip for now" button and we ready to go!

Next you will be shown the screen below.



As you can see (top of the screen), you only have access to demo accounts (because you have not yet FICA’ed). You have a ZAR Demo account and a USD Demo account. Just ignore the USD demo account for now and pretend it’s not there - we are interested in the Randela (or ZAR) demo account. You have R100k worth of demo money to play with - baller!

Time To Invest In An ETF

So, now lets practice buying our very first ETF (Exchange Traded Fund.)

ETFs are great because you get a whole whack of diversification in just one product, and they are really cheap. If you want more info on what an ETF is – check out this short and sweet description.

An ETF which is perfect for a beginner investor (and one I hold and continue to buy) is the Satrix MSCI World. It invests in global companies like Apple, Coke, Nike and Google. So let’s go buy some of them...

Since we are buying an ETF, we need to select ETF from the list of available options at the top. Like this:


You will see a list of ETFs appear underneath. The one we are looking for is the Satrix MSCI World ETF. So we can either browse until we find it, or just search for it.

Type Satrix in the top search box and all the Satrix ETF options will be shown. The one we are looking for is the Satrix MSCI World.


Or if you want to jump to Satrix MSCI World directly, type "Satrix MSCI World" in the search box and the investment gods will make it magically appear!


Okay, let’s buy some Satrix MSCI World ETFs with our play-play R100k demo money. Click on the Satrix MSCI World ETF block, and you will be taken to the buying screen.


This screen shows you that you are about to buy the Satrix MSCI World ETF, and then asks you how much you would like to invest in it. There are some default options (R250, R500 and R1000), and a block where you can type in the exact amount you would like to buy.

Let’s buy R10,000 worth. Type R10,000 into the Rand box, and then select the “Once Off” button.


You will now be asked to confirm your investment. The screen looks like this:

You will see that the amount you want to buy is R10,000, and the cost to perform the transaction will be R37.40. That works out to 0.374% of the transaction value (among the cheapest of cheap in South Africa).

You can see everything that makes up the R37.40 charge by clicking on the little arrow next to it. That will open up this screen.


Here is a (very) quick description of the various costs:
  • Broker commissions – Remember we spoke about this one at the start of the article? You're unlikely to get cheaper than R25 for a R10k investment anywhere else. Note that the R25 is 0.25% of R10,000, so if you invest less, this fee will be less. For example a R100 investment will cost you just 25c!
  • Settlement and administration - This is always charged no matter which broker you use.
  • Investor protection levy – This is something always charged, and is to protect you against (the extremely extremely unlikely event of) fraud or if something goes wrong.
  • VAT – Yeah this sucks, seems VAT is everywhere!
  • Securities transfer – This is a charge that every investor will pay wherever they invest and its to transfer the ETFs into your name.
Okay next up, click the totally awesome, wealth building, life changing, financial freedom enabling “Invest Now” Button.


Woohoo, you have just managed to buy your first ETF investment!

You will see that your available balance has now decreased by the R10k worth of Satrix World ETFs you just bought, plus the R37.40 investment costs.


If you click on "Account Overview", at the top of the screen, you will see the Rand and Cent value of your available balance and your investments (which at this point is just your Satrix World ETF). You will also see a list of recent transaction activity which details what has been happening in your account.


And that’s pretty much all there is too it! You can now add "ETF Investor” to your set of skills!

Investing Your Money For Reals



Okay so once you are comfortable with how investing works in the demo account, you pretty much know how investing will work when you put in some real money! The process is exactly the same!

How Much Money Do You Need To Start Investing?

This is a pretty common question! A lot of people are under the impression you need a truck load of money before you can start investing. Before the days of EasyEquities, this was unfortunately true - steep fees and high minimums meant DIY investing was not possible for most people back in the day. But all that has changed!

EasyEquities will literally let you invest R5 (and in fact I have bought R5 worth of ETFs before - it works!)

So as soon as you have even a little spare cash, you are ready to become a for-realsies investor!

FICA

But first things first. Before you can invest any real money, you will need to FICA. Luckily, EasyEquities have made the process pretty painless and quick.

Click on the little man on the top right of the website, and you will be shown a menu (like the pic on the right). 

One of the options is “My Fica”.

Click on that.

You will then be taken to the FICA screen where you can fill in all your details and upload the necessary documents. There are a few tabs to be completed, but they are all pretty quick and easy, just follow the instructions.

Once your FICA is done, you will be upgraded to “Proper Legit Investor” and you will get access to some proper investment accounts. 

Your top menu will change and will now look like this.


A quick description of the two accounts you should care about:
  • EasyEquities ZAR is a normal investment account. You can buy ETFs in here just like you did in the demo account.
  • TFSA is a Tax Free Savings Account (these can be pretty powerful). You can buy ETFs in the TFSA account, just like you did in the demo account, but there is the added benefit of not having to pay any tax - sweet!
To move money into either of these accounts, just select it, and then click on the menu at the top left and select "Deposits"

EasyEquities have accounts at each of the banks (which means no matter who you bank with, the money you transfer will move into your investment account quick quick). 

Find the account details for the bank that you bank with. For example I have shown ABSA and FNB here:



Then just make a normal EFT payment using the appropriate account details and the reference given. Your money should reflect in your EasyEquities account within an hour.

And that’s it! You are now ready to invest! 

You can go and buy some Satrix MSCI World ETF (or anything else which tickles your fancy) in the exact same way you did using the demo account.

Congratulations, you are officially an investor!

Further Tips

And then lastly, I just want to share some further tips and tricks:
  • Don’t buy any ETFs before 09h30 in the morning. Before then, sometimes the market maker of some ETFs have still not had their coffee, and might be half asleep. This means the spread on the ETF can be large, and you end up overpaying for the ETF. After 09h30 this won’t happen.
  • If you don’t like Tax (who does!?) then you should seriously consider making use of the TFSA account you get. The buying works in the exact same way as in the demo and normal accounts, but all your dividends, capital gains and interest is free from any tax. Very cool! Important – you should only use this for long term stuff like saving for retirement (then the tax benefit really works for you!)
  • The Satrix MSCI World ETF is pretty much all you need (read more about why over here). But if you would like to add some listed property, or a more local flavour, you can consider buying some other ETFs. This article on some of my other favourite ETFs may be interesting and give you some ideas around which other ETFs you might want to buy.
  • Definitely go and check out Just One Lap. It is a fantastic website for DIY investing and includes a great Monday podcast as well as an ETF article every Wednesday.
And that's it! Happy investing!

If you have any other questions, you are welcome to drop them into the comments below. The DIY investing community are an extremely friendly and helpful bunch of people who will jump at the opportunity to encourage, share and assist! So don't be shy :)

And of course, you are always welcome to get in touch.




Till next time, Stay Stealthy!
 - ~ - ~

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