A newbie’s guide to investing on the JSE

LemmingsMy favourite computer game as a child (yes we had computers back then, much to my son’s disbelief) was Lemmings. In this game you’d have to rescue these humanoid lemmings who were too stupid to do anything else except follow their leader to their doom. Sounds pretty much like our government at the moment doesn’t it?

Well it wasn’t quite as painful, as luckily, these lemmings could follow some instructions. You could tell them to dig, or build a staircase, or give them an umbrella to use as a parachute, all to try and get these lemmings to the end of the level. Oddly, the end of the level seemed to be the gates of hell, maybe that should be a warning to some of those politicians! You could also hit the nuke button, and make all the lemmings explode, that wouldn’t help in any way, but it was fun to watch.

So this game was extremely addictive, I could spend hours playing, but sometimes I’d get to a level you just couldn’t solve no matter how many times I tried. Then a little while later some fantastical thing called the internets arrived in South Africa. Using that I could go to this place called altavista and type in lemmings walkthrough and some very clever boy with no friends would have typed up the entire solution to finishing every single level.

And now with this post, I hope to be that clever boy with no friends to some of you.

So, if you’re a stock analyst then this post is not for you. If you’re a seasoned investor able to explain what a PEG ratio is and why it matters when picking stocks, then this post is also not for you. If you know which sectors of the stock market you should be invested in now, and which to avoid, yes you guessed it, this post is NOT FOR YOU!

On the other hand, if you believe the stock market is like gambling, this post is for you. If you wait for the red stop sign to turn green (I do that!), this post is for you. If you thought the “Do not use underwater” sign on your toaster was a fair warning, this post is for you. If you haven’t got a clue where to start when investing on the stock market, this post is most certainly for you!

And just to make it even sweeter, if you’re a complete newb or a totally useless stock picker like me, this post will make sure you actually do better than 80% of all the experts working in those big fancy glass buildings scattered around Sandton, or overlooking the freezing cold ocean in Cape Town. With a little effort, and by little I mean practically none, you should almost be guaranteed of getting better investment returns than the people who look at charts and numbers for so long that they end up burnt out, friendless and far poorer for all their efforts.

This is one of those rare cases when less is definitely more. Less knowledge = more profit and less effort = greater gains. It might sound like a catch, but there’s no catch here, when it comes to stock market investing, your brains are your worst enemy.

Now none of that is news to the regular readers, after all, I wrote about it here, here, here and a little more here, which is why I want this post to be the one you send to your market fearing husbands, unit trust holding mothers, barely knows where to turn on the computer grandmothers and any of the many spendosaurus friends you may have who seem to be suffering from a money allergy.

The most common question I get from friends and relatives is “Can you help me get started with this investing thing?” or something along those lines. So, to save myself countless hours which would have been spent with yet another person helping them open their investment account and buy their first ETF, I’m going to try make an investing walkthrough.

Ok, enough chit chat, let’s jump right into it. There are in fact, only 3 steps to do to begin investing on the JSE, and just so that I’m not like one of those annoying Oscars announcers, I’m going to spit them out right now:

  1. Open a stockbroking account
  2. Fund the account
  3. Buy stuff

It really can be that easy, but there are a few pitfalls to avoid, so it would be best if you did in fact read on.

Opening a stockbroking account

I’ve attempted this 6 times personally, with 4 being successful, and two unsuccessful. I’ve helped my wife set up an account, and advised many friends on doing the same. I’ve spoken to every major bank, and reviewed the charges on practically every dedicated stock broker in South Africa, and after all that, there are only two I would consider, based on costs, ABSA Stockbrokers and Easy Equities (EE). ABSA offers three types of accounts, and Easy Equities two, though the fees for both EE accounts are the same. Here’s the main costs for each of those:

Investment fees - ABSA stockbrokers vs Easy Equities

Investment fees – ABSA stockbrokers vs Easy Equities

So what do those numbers say to us?

  1. The ABSA stockbrokers regular stockbroking account IS NOT cheap anymore, but that’s actually completely OK, because you’re not interested in that account. All you want to buy are ETFs in any case, unless you’re able to see the future, in which case why are you even bothering to read this article since you already know the outcome!
  2. The ABSA stockbrokers tax free savings account is the cheapest investment account in the country full stop. If you only have R2500 to invest and want you the absolute best bang for your buck then go with ABSA stockbrokers tax free savings account.
  3. For non tax free investing, the minimum fee comes in to play. I’ve done the maths (see below), and I can tell you that the breakeven point is R10 000. As I encourage everyone to invest their money as they’re paid every month, this would mean that if you have less than R10 000 a month to invest and want to go with one account that you should go with Easy Equities. If you have more than R10 000 a month to invest, go with ABSA, putting the first R2500 into the TFSA and the rest into the ETF only account. For exactly R10 000 on the dot, costs don’t matter!
The breakeven point for the cheapest broker

Who’s the cheapest broker in SA? If you have under R10 000 a month to invest, use Easy Equities, over R10 000 use ABSA, exactly R10 000, it doesn’t matter!

Now since most people, especially newcomers to the market will probably end up with under R10 000 a month, purely on the numbers, I’ll advise you to go with Easy Equities. That’s a good thing too, because the “easy” part of the name Easy Equities is a very useful quality to have for beginners. Everything about the platform seems to have been designed to be idiot proof. For now at least, I’m sure somewhere two people are busy inventing a better idiot…

The seasoned investors on Shareforum.co.za call it candy crush investing. You don’t need to know about bid offer spreads, or be worried about putting in a price in Rand rather than cents and paying 100 times more than you should have, yes that does actually happen! It’s also really simple to open the account, and with that being said, let’s get to the walkthrough, click next when you’re ready for the next slide:

  • Go to www.easyequities.co.za (or click on this slide to go right there) and click on register in the top right.
  • Enter all your personal details. *If you feel like being kind to me, you can use my account number (EE47379) as a reference and I'll get R50 off my future transaction fees!
  • Enter your address to keep the FICA clowns happy.
  • Enter your banking details. This is crucial because you will most likely want to start drawing on your investments one day, and this is the bank account the cash will be sent to!
  • Now it's time to choose your username and password. It'll need to have a capital letter and a number in it. Please don't choose Password1!
  • Success, but don't go anywhere just yet, there's still more to do...
  • Before you carry on, you need to FICA your account. Fortunately it isn't too difficult. Click on "My Account" on the top right, and then "My Fica" as seen above.
  • Thankfully EE doesn't usually need police certified documents. Click on browse for points 1 and 2, then click on "Send Digital Application Form" under point 3. Now check your email, you should have something from EE.
  • That's the mail, click on the blue link circled above. No not on this page, in your email. And yes, I do have 12,479 unread emails, I'll get to them soon I promise ๐Ÿ™‚
  • You should be taken to an online registration form. Fill in all the relevant yellow fields.
  • On the bottom right corner, click where it says click here.
  • Then type your name in the block on top. Computer wizardry will then put it in your exact handwriting underneath.
  • Then click on the big blue "Click to sign" button
  • Next up, it's time to deposit money. Click on "MY ACCOUNT" and then on Deposit.
  • Please listen carefully as this is important: On the top of the screen change the dropdown to your Tax Free Savings Account. You always want to use your R30 000 annual TFSA allowance before you invest anywhere else, so until you've deposited R30 000, don't even bother with the regular account. Enter the amount you'd like to deposit, then make sure EFT is selected as it's the cheapest.
  • Then from the dropdown list, choose the bank account you'd like to use. The big 4 banks, and Investec are listed, so if you're lucky the transaction will go through very quickly.
  • That will generate the banking details for you. Go to your online banking and make the deposit, copying the full EEXXXXX-XXXXX in as your reference.
  • At last, time to buy. I'll use my demo account here, and you can practice with that too, but then switch to your TFSA to invest for real. Click on "MY ACCOUNT" then on "Buy".
  • Now since you'd be working in your TFSA, you can choose from any ETF to buy. They all do different things, and cost different amounts in annual fees. You can get an idea on how much they cost, and what they do by clicking on this slide which will open the webpage of ETFSA. That'll show you the cost under the TER column, and let you view the fund factsheet. If you have no clue, you could always just buy the top 40 companies. The cheapest way to do that is to buy the Ashburton Top 40 which costs just 0.15% per year, that's super low!
  • In the next window, enter the amount you want to invest in the fund and hit "CONTINUE".
  • Next you will see the total transaction costs listed. You can adjust your investment amount here and hit the refresh circle to get it updated. When you're ready, click on "INVEST NOW".
  • Congratulations you rock star. You now own a tiny little piece of the top 40 companies on the JSE. You really do, you can now rest easy that when you pay your DSTV bill, a part of the profit comes back to you. That Castle or 7 you had last Saturday, yes you're a part owner of that company too. Same goes for MTN, Sasol, pretty much all of the big banks, Woolworths, Shoprite, Discovery. You're on your way to becoming very wealthy indeed. Just give it a decade or two!

 

Do you already have a stockbroking account?

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*Warning: You’re probably going to want to buy individual companies. Like I said above just don’t. There are most likely far smarter people than you doing the exact opposite. I’m not one of them, but believe me they’re there. Just buy the ETFs and sleep soundly at night, well at least until Zuma creates the next crises.

**Added bonus: Click here to go play the original Lemmings online ๐Ÿ™‚

***In case you’re wondering: I get no money from any brokers for writing these articles.

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  • Erwin Kuschke

    lemmings! – sigh why is it still so addictive ๐Ÿ˜ฎ

  • I know, I lost half my night while writing this!

  • Erwin Kuschke

    just checking – in your tables above , is the absa ETF minimum fee R60 or R20?

  • My mistake, it is R20. I’ll fix the pic when I’m back at my desk on Monday. Thanks for picking it up.

  • ะกะตั€ะณั–ะน

    Hello Patrick
    What would you say about StandardBank’s “AutoShare Investment Account”?

    http://www.standardbank.co.za/standardbank/Personal/Banking/Savings-and-investments/Auto-Share-Invest

    Apart from minimum of R500 which does not matter to me, is it on the same level as EasyEquities especially if I’m already with StandardBank?
    Regards, Sergiy

  • I hadn’t seen that yet, but just took a quick look. The fees just don’t seem to add up for me. They claim a 0.25% brokerage, the same as easy equities, but then in their PDF breakdown they list the actual costs per transaction. If you were investing R1000 a month, according to their table you’d be paying a total transaction cost of R18.56, which is 1.86%. With Easy equities a R1000 transaction has fees of R3.72, or 0.37%.

    There’s just no comparison, forget you ever heard of standard bank’s offering.

    As an added bit of info, would you like to invest in the same thing, forever, or would you prefer to be able to change your mind?

    If you need a little more motivation, you can’t use the auto share invest if you decide to leave standard bank. I don’t like being tied to my bank, in fact I left std bank about 2 years ago, and am far happier since.