What picture do you spontaneously have in mind when you hear something from shareholders or owners of a company? Older men in suits and chauffeurs? Surely there are some. But becoming a shareholder yourself has never been easier than it is today. And it can be worth it, especially when interest rates on savings are low.
About 37% of South Africans invest in stocks. This can be done with just a few dollars and an online depot. Several new investors have come along, especially in the last few months. In this guide, you will learn some basics: What is a stock index, and why is it worth investing in stocks?
What is a stock index?
Not every company is a stock corporation. But the shares of 1,000 companies are traded on the largest trading platforms, such as AdmiralMarkets. There are three categories: large, medium-sized, and small companies. The companies with the highest market capitalization are called standard stocks, blue chips, or large caps. The 40 largest standard stocks in South Africa are listed in the South African Stock Indice JSE TOP 40.
A stock index expresses the development of the companies listed in it in a single number. You can see at a glance how an entire market is developing on average. Indices are calculated using fixed formulas, and their value is measured in index points. Put simply, an index rises when the prices of most companies listed in it rise. The index falls when the majority of company prices fall.
Profits and losses are usually expressed as percentages in the media and on financial sites on the internet. You can follow how the world’s most important stock indices are developing. However, such market data is available from many other websites, daily newspapers, and special media.
Indices similar to the JSE 40 are calculated for almost every country in which a developed stock market exists. The main index summarizes the largest standard stocks and is usually referred to as the leading index. Market observers consider it representative of a country’s market because it captures a large portion of the total market capitalization. For example, the JSE 40 is the leading index in South Africa.
Why do you need shares?
A balanced investment consists of different asset classes. It should be clear that your money does not increase in a checking account. You cannot expect enormous returns even with overnight money and fixed-term deposits.
However, if you split the savings amount, new opportunities arise. The compound interest effect helps here. A diversified share portfolio has had a significantly stronger increase in value than savings account over the past few decades. Despite all the crises, equities have proven to be a high-yield investment over the long term. Studies show that Stocks threw off the highest returns compared to safe government bonds and short-term interest investments.
Why is it worth investing in stocks?
Investments in equities are considered relatively safe and low-risk investments compared to investments in other assets. The advantage of equity investments is often the high liquidity of the markets, which allows you to buy or sell shares virtually any time. Low fees and the ability to personally manage your portfolio are other benefits of equity investments. The disadvantages include the practical impossibility of influencing the company’s operations, low awareness of retail investors, and, of course, the possibility of enterprise bankruptcy in extreme cases.
CFD – a sensible alternative for stock traders
A CFD, a contract for difference, is nothing more than a derivative. Its structure is similar to a futures contract known from the stock exchange. One difference is that CFDs do not have an expiry date.
CFDs are, in a sense, the missing element of the stock exchange. Contracts for Difference are derivative instruments based on public stocks, global indices, and commodities. They have many advantages over traditional stock trading, making them a good instrument for earning money from short to medium-term price movements. The offer of brokerage firms has been offering a wide range of CFDs for some time. Simple construction, the ability to earn on ups and downs, and leverage are just some of the advantages of CFDs.
Additional Sources:
https://www.finder.com/za/share-trading-statistics#:~:text=South%20African%20share%20trading%20stats,but%20haven’t%20invested%20recently.
