IS IT BETTER TO INVEST IN SHARES DIRECTLY?

IS IT BETTER TO INVEST IN SHARES DIRECTLY?

Investing in the stock market may sound like a smart thing to do, much more trendy than investing in unit trusts. If you have the money and the expertise to do it, investing directly in shares on the JSE can be very rewarding, but if you are able to invest only small amounts, and/or you have little time to research where and how to invest, the good advice has always been to choose a multi-asset unit trust fund. This type of fund offers you access to a diversified range of shares and/or other securities selected by a professional fund manager at a relatively low cost. However in recent years, changes brought about by the lower costs of online stockbrokers and the rise of exchange traded funds (ETFs) may have made this traditional advice a little less relevant. ETFs are listed on the stock exchange, but represent a basket of shares in line with a preselected share, bond or money market index, such as the FTSE/JSE All Share Top40 Index, so they offer diversification across a range of shares for the price of buying a single share. Now, too, some banks offer pre-selected share portfolios to their online banking customers with smaller amounts to invest. The JSE says it has seen an increase in the number of individual investors accessing shares and ETFs directly through a 1 stockbroker or investment plan as a result of improved awareness and understanding of markets, the rise of ETFs, the launch of the JSE’s Tax Free Savings Account (TFSA) for ETFs, increased use of online stock-broking platforms, the rise of share incentive schemes, and the growth in the South African middle class. In just over a year individuals have opened more than25000 tax-free savings accounts with stockbrokers and have invested R250 million in them. However there are still some good reasons for certain investors to invest in a unit trust, particularly if they are investing for retirement, want greater diversification across the asset classes, are looking for a fund that is managed in a way that reduces exposure to the ups and downs or volatility of the market, want a low-risk, short-term investment, such as a money Market fund or an income fund, or want to be sure they can sell their investments quickly when they need to.

Reference: Laura du Preez