My Journey with Investing 12/07/2024 update (A Beginner's Guide to Investing: My Journey with ETFs, Unit Trusts, TFSAs, and Fractional Shares)
Disclaimer: This is not financial advice. Always consult a financial advisor for personalized guidance.
I'm Lungelo Shandu. I've been investing since 2018, and over the years, my investment strategy has evolved. Initially, I actively picked individual stocks, but now I've shifted to a more passive approach. Let me share what I've learned about investing, ETFs, unit trusts, tax-free savings accounts (TFSAs), and fractional shares, and how they make investing easier than picking individual stocks.
What is Investing?
Investing is like planting a tree. You put money (seeds) into financial assets (like stocks or funds) and hope they grow over time, giving you returns (fruit). The goal is to make your money grow by choosing the right assets.
What is an ETF?
Exchange-Traded Funds (ETFs) are like a big basket holding many different fruits (stocks, bonds, etc.). Instead of buying each fruit individually, you buy a share of the basket. This way, you get a little bit of everything, reducing risk and making it easier to invest.
Example: I own the 10X Total World Stock Feeder ETF. It's like having a basket with pieces of companies from all over the world. If one company does poorly, it doesn't affect my entire basket too much because there are many other companies in it.
What is a Unit Trust?
A Unit Trust is similar to an ETF but managed by professionals who decide what goes into the basket. They pool money from many investors and invest in a diversified portfolio.
Example: The Merchant West SCI Enhanced Income Fund is a unit trust I own. It's like having experts pick fruits for my basket, aiming to give me regular income or moderate growth. They might choose fruits that are known to provide steady returns.
What is a Tax-Free Savings Account (TFSA) in South Africa?
A Tax-Free Savings Account (TFSA) is a special type of account where the fruits (returns) you get from your investments are tax-free. This makes it easier to grow your money without worrying about taxes.
Key Features:
Contribution Limits: You can add up to R36,000 each year and up to R500,000 in your lifetime.
Flexibility: You can take money out anytime without penalties, but you can't replace it if you've already hit the annual limit.
What are Fractional Shares on Easy Equities?
Fractional Shares let you buy a piece of a share instead of the whole thing. This is great because you can start investing with very little money.
Example: On Easy Equities, I can start with as little as R1. If a share of a company costs R100, I can buy a tiny fraction of it for just R1. This way, I can invest in big companies and funds without needing a lot of money upfront.
Why This is Easier and More Convenient than Picking Individual Stocks
1. Diversification: By investing in ETFs and unit trusts, I automatically spread my money across many companies and assets. This reduces the risk compared to picking individual stocks.
2. Professional Management: With unit trusts, professional fund managers make investment decisions for me. I don't have to worry about researching or picking the best stocks.
3. Lower Costs: Buying fractional shares on Easy Equities means I don't need a lot of money to start. I can invest small amounts and still build a diversified portfolio.
4. Tax Benefits: Using a TFSA means my investment returns are tax-free, helping my money grow faster.
My Investment Journey
Since I started investing in 2018, I've realized that keeping track of multiple stocks takes a lot of time and effort. My only individual stock left is 4Sight, which I'm selling to fully embrace a passive investment style. This shift is the opposite of how I started but suits my current lifestyle better.
Summary
Investing in ETFs, unit trusts, and using a TFSA with fractional shares on Easy Equities has made my investment journey smoother and more convenient. I don't have to stress about picking individual stocks and can start with small amounts. It's a great way to build wealth over time, even if you're just starting out.
**Disclaimer:** This is not financial advice. Always consult a financial advisor for personalized guidance.
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