Some people might ask, “why do people risk their money through investments?”
Well, they do that for several reasons; to send their kids to college, secure their retirement, and the list goes on.
But one thing’s for sure, they look for a passive income. They want their money to make more money.
But here’s the deal: investing is inherently risky.
This makes finding the best investment in South Africa nerve-wracking. But don’t fret—this article will make your decision-making a little easier yet comprehensible.
Discover here the best investment options in South Africa in 2024. We’ll walk through the profitable opportunities, potential risks, and best practices to ensure you’re putting your hard-earned money in the right place.
What Is Online Investment
“Have your money work for you”
Online investment is a cost-effective and easy way for South African investors to access the global financial market and ultimately try to generate money passively. With digital advancement, you can easily invest in different financial markets with just a few taps of fingertips.
However, with many options to invest online, it becomes harder for the investors to commit. It’s like they got information-fatigue due to the big and overwhelming trading data.
Note: Joining an online trading community would make your decision-making easier and more practical. TRU CommuniTrade is a verified community of traders where you can ask questions, share and get market insights and trading signals, and tap into broker ratings and reviews.
Here are the three major considerations before you start investing in South Africa.
- Budget: Aside from the actual investment capital, you must anticipate brokerage fees and commissions—especially if you intend on investing actively.
- Volatility: Asset prices fluctuate from time to time. Make sure you know how exploit and mitigate the risk of a volatile asset.
- Asset Allocation: Portfolio diversification—a proper allocation of assets or investment—is crucial to avoid overexposure to a single risk.
Types of Investment in South Africa
Despite the technological delay, investors know the huge investment opportunities in South Africa. This includes owning a company stock, trading currency pairs, exploiting derivatives commodities, and investing in exchange-traded funds.
Remember, investing is far different from gambling. Here, you deliberately factor in everything that would affect your money. One crucial consideration is the investment type you’re doing.
Here are the four common yet lucrative investment options in South Africa.
Company Stocks
At its core, stocks investing (stock trading) is all about taking advantage of your position’s entry and exit prices. Basically, you buy a share of a publicly traded company, holding it over a specific period, and selling it once the price becomes significantly higher.
But this is not the only way to profit from your stock investment. You can invest in a dividend stock to get a regular passive income.
Companies that pay dividends to their shareholders aim to control, mostly reduce, the volatility of their respective stocks. This would essentially attract more investors to buy their stocks.
Aside from dividend stocks, there are other stock types you can invest in. This includes the common stocks like:
- Blue chips. Stocks from one of the largest, well-established, and financially sound companies with a history of reliable performance.
- Growth stocks. This is recognized as the riskiest stock type to trade because of their great chance for outsized growth.
- Defensive stocks. The companies that tend to hedge economic downturns have defensive stocks. Due to its ability to weather volatility, this stock type is considered a great starting stock for new traders.
- Exchange-traded funds (ETF). EFT trading includes investing in a basket of stocks. Investing in EFT means you have a share of all companies listed in the index.
Another thing to consider is the tax implication of stock investing. If you open a stock trading account with an online brokerage, you should be mindful whether the trades and gains you make are taxable.
| Account Type | Taxable |
|---|---|
| Brokerage Accounts | Capital Gains and Dividends |
| Managed Accounts | Capital Gains and Dividends |
| Dividend Reinvestment Plan (DRIP) Accounts | Dividends (once received) |
| Retirement Accounts | Tax-free |
| Traditional IRAs | Tax-deferred |
Derivative Commodities
South Africa is known for its natural resources, which is the main asset for commodity trading. This makes South Africa commodity trading lucrative as it’s profitable.
Among the commonly traded commodities in the financial markets are:
- Gold
- Silver
- US crude oil
- Brent crude
- Copper
- Natural gas
- Agricultural products
However, when you trade commodities in derivatives, you don’t have ownership of the physical commodity. What you have is the contract of agreement which signifies your ownership of the commodity. This contract then shall be sold within the contract’s validity period.
If not sold, the contract expires, and the trade will not be valid.
Sounds like a good deal? Certainly!
But remember, opening a pending derivative contract would require you to pay commissions or a fee, which will not be refunded if the trade failed to push through.
Index Funds
Index funds or exchange-traded funds (ETF) function to mimic the performance of index markets. Investing in an index fund is beneficial if you want an easy yet safer way of trading. By participating in the index funds market, you technically diversify your portfolio because you’re investing in multiple companies at once.
However, unlike the two mentioned above, investing in ETF requires long-term commitment. Thus, it’s not suitable for short-term traders.
Overtime, index funds have proven its significance to the market by outperforming the largest indices like the Dow Jones Industrial Average (DJI), NASDAQ 100, and Standard & Poor’s 500 (S&P 500)
Here are the three popular index funds in South Africa and the companies belong to their respective baskets:
| Index Funds | Including Companies |
|---|---|
| SPDR Dow Jones Industrial Average ETF | Boeing Catterpillar Goldman Sachs Home Depot Microsoft UnitedHealth Group Visa |
| JSE Top40 Index | Anglo BHP British American Tobacco Glencore Nasper Prosus |
| IShares Core FTSE 100 UCITS ETF | AstraZeneca BP Diageo HSBC Royal Ducth Shell Rio Tinto Unilever |
Choosing the Best Investment in South Africa
Your utmost consideration when looking for the best investment in South Africa should be yourself; how capable you are to invest in that financial security, including your risk tolerance, financial goals, and at most, your financial capability.
Once you’re ready to start investing, you can further familiarize yourself with the financial market. Do so by exploring our TRU Insights, your go-to library for any sort of trading.
