Growing up, many of us have perceptions about investing that we (hopefully!) figure out later are not correct. One of Franc's aims is to allow the every day South African access to quality investment products. We also want to make the process of investing as simple and unintimidating as possible so that even those of us that were not paying much attention in maths class can understand how it works and why it is so important!
Myth 1: You need a lot of money to start investing
This was true around 10 years ago but does not apply any longer. With platforms like Franc and Easy Equities, you can now start accessing investment products with no minimums and low costs. Gone are the days when you were forced to use a stock broker that charged you a minimum of R100-200 to trade shares (so it only really made sense to trade if you were investing R20,000 or so at a time given the high relative cost), or that you needed R50,000 to open a money market fund.
Myth 2: Investing has to be complicated
If you battle to understand what Bobby Axelrod and Michael Prince are up to in Billions then I get why you may think this! But that is just Hollywood entertainment.
You invest because you want to earn a return on your investment. The options out there can be very complicated and can range from no risk to extremely risky (not to mention plenty of scams). However, if as an average person you have the following two pots, you are already most of the way there:
- An emergency fund. Make sure it makes up 3-6 months of living expenses and is in a low-risk, interest-bearing product that is easily accessible.
- A diversified index tracking equity ETF. This one should comfortably beat inflation over a long period of time.
The first is to protect you from short term shocks and emergencies whilst the latter helps you build wealth over the long term so that when you stop working, you can retire comfortably (assuming you didn't skimp on your monthly contributions!).
Myth 3: Investing is like gambling
The commonality between the two is you can make or lose money doing both. However gambling is extremely high risk – you either make money or lose everything (most likely the latter).
Investing, if done properly, allows you to build up wealth without taking too much risk. Sure, your investments can go up and down over time, but if you are invested in the right products and you can afford to be disciplined enough not to touch your investment, you will be smiling all the way to the bank.
Myth 4: Buy low, sell high
In theory this is great advice, however nobody can tell what will happen in the future, so nobody knows when the low is or the high is – these things are only known in hindsight. Sure, experienced investors may have a rough idea when things are either undervalued or overvalued, but even they often get it wrong. Also worldwide pandemics, like Covid-19, can't really be planned for.
Therefore, it's best to create an investment plan and stick to it (assuming your life circumstances don't change). Don't try to time the market because you will probably get it wrong. Keep investing consistently and let compound growth work its magic.
Myth 5: Check your portfolio all the time
There is so much available news in today's world, some of which may impact your investment, but much of which will not. There is nothing much you can do about what is happening around you. So if you have an appropriate investment strategy and – most importantly – do not panic when things become a bit jittery, there is no need to check your investment all the time. Trust the process!
Like the saying goes - your investments are like a bar of soap, the more you handle it, the smaller it becomes!
