There are a plethora of ways one can build wealth in South Africa, the first of which is to save your money.
After you some money saved and have built up a decent emergency fund, usually recommended to be 6 months of your monthly expenses, you can begin investing any leftover funds to build equity or make money by trading.
With the many options available where you can invest your money, it is a good idea to familiarise yourself with the options you have while establishing your appetite for the amount of risk you are willing to take on.
Ordinary Shares or “Common Stocks”
Ordinary shares, also referred to as common stock make up the majority of shares trading today and can also be deemed as securities or equity.
Ordinary shares represent ownership in a company and provides investors with voting power per share to elect board members.
With ordinary shares, your investment can grow through capital growth and at the discretion of board members earn dividends.
The most common way to buy shares In South Africa is through the Johannesburg Stock Exchange (JSE) which provides investors access to public-listed companies and their shares.
Most trading of ordinary shares by retail investors happen through share trading platforms. Ordinary shares are also high-risk.
Should a company go bankrupt and be forced into liquidation, then the shareholder won’t receive any money until creditors and preference shareholders are paid.
Preference Shares
Preference shares only represent some degree of ownership in a company and in most cases, shareholders do not hold any voting rights. Preference share holders are also guaranteed to get paid dividend before ordinary shareholders.
ETFs
Exchange-traded funds or ETFs, are a collection or “basket” of shares or bonds managed by a fund.
It can be seen as a polled investment where investors are able to to buy into weighted ETFs and hold investments from different companies or industries in order to diversify their investment while also being able to still receive dividends, all while the fund is managed by financial experts.
For example, you could buy shares of an ETF of which the ETF may have exposure to the top 40 companies on the JSE for example, or perhaps only exposed to the banking sector for instance.
Funds have a breakdown of the risk profile and the allocation of the fund per industry or company along with past performance.
With ETFs you bet on multiple companies without having to buy individual shares which could cost multiples that of what the ETF would cost you. Funds usually also take a small fee as they are the ones actively managing the fund.
CFD trading
Contract for difference or CFDs lets you speculate on the future market movements of an underlying asset without you physically taking stock or owning the underlying asset.
Examples of CFDs can include Gold and Oil, other commodities and even stocks, crypto and forex. Due to speculating on future price movements, CFD trading is extremally volatile as well as risky and should not be avoided for those new to investing.
Forex Trading
Foreign exchange sees currency being transferred between buyers and sellers. With a brokerage account investors can speculate on the future price movements and value of a currency in relation to another currency, for example the U.S. Dollar and South African Rand.
When forex is traded one currency is bought while another is sold simultaneously. There are over-the-counter markets and decentralised exchanges which can accessed by the retail investor with a brokerage account.
Forex trading is high-risk and has developed a negative connotation in South Africa due to elaborate scams and flashy lifestyles to promote these scams. Nerveless, with the right tools and education, forex trading can be a lucrative investment opportunity – but will require active trading.
Tax Free Savings and Investment accounts
Nearly all banks in South Africa offer a tax-free savings account (TFSA) where any South African is able to invest up to R36,000 per year with a lifetime limit of R500,000.
You also have the option of opening a Tax Free Investment account which holds true to the limits previously mentioned and which can based in conjunction with a tax free savings account.
You can then invest in any qualified investment which consists of cash, stocks, bonds, mutual funds and ETFs.
Fixed Deposits
Most commonly provided by banks, fixed deposits are an investment instrument which provides a higher rate of return when compared to a traditional savings account with the exception being that you may only access your funds on the maturity date.
Fixed Deposits offer you guaranteed capital at a fixed interest rate.
Debentures
Debentures can be described as fixed interest stocks which are repayable by a given date, has lower risk compared to ordinary shares, and can be converted into ordinary shares in the future, called Convertible Debentures.
Debentures carry similarities to bonds and are a kind of debt instrument which companies use to raise funds. Debentures have no collateral backing.
For this reason, debentures are a at investment vehicle for investors looking for a fixed income derived from interest which is not tied to the performance of a company.
Debentures can in many cases provide higher returns than bank interest rates and even government bonds. Debentures still carry some degree of risk, as the investor is lending money to a company.
Debentures can be purchased with a brokerage account of one of the JSE’ Equity Market Members.
Bonds
Bonds are loans to governments or companies for a period of time and which the investor is paid a fixed rate of return over a specified period.
The South African government makes RSA Bonds available to the public.
These bonds are listed on the Bond exchange of South Africa and trade in the capital market at the yield to maturity. Interest is paid semi-annually to the holder at the coupon rate.
There are also ETFs which provide exposure to several bonds.
Real Estate
If you have the capital, real estate is a great low-risk but high maintenance investment opportunity, with many ways to build equity or derive rental income.
If you’re strapped for cash, REITs, or real estate investment trusts can offer you exposure to real estate investments. REITs usually own apartment buildings and commercial developments such as shopping malls or office buildings.
REITs are most often publicly traded companies which can be accessed through the JSE and even some share trading platforms.
Digital Assets
With the rise in popularity of cryptocurrencies, numerous innovative financial investment opportunities have emerged, from loaning out your crypto, staking your crypto, hodling or even saving your assets as stable coins in a fixed-interest account.
With cryptocurrency, you can buy coins or tokens on an exchange, and keep them in your wallet until they rise in value, dependent on market conditions – supply, and demand known as hodl, “holding on for dear life”.
You can also make use of de-fi platforms (decentralised finance), which allow you to earn interest on your crypto holdings by lending it out. Some platforms also have a fixed-interest savings account or wallets where you can earn interest from your crypto.
There are also games where crypto can be earned or non fungible tokens (NFTs) like digital artwork which can be bought and resold later for a profit.
From this list, digital assets carries the highest risk in my personal opinion and diligent research should be conducted before any financial investment is made. Hacks are common and many have lost their livelihoods.
This space is still relatively new compared to traditional finance, however does boast numerous investment opportunities and this is reflective of the combined market cap of the crypto world.
To conclude, there are many investment opportunities available in South Africa and today they are more accessible than ever to new investors and veteran investors alike.
Always do your research when investing money, ensure you have an emergency fund should anything go south and never invest any money you cannot afford to lose. Finally consult a financial planner to ensure that you are not taking on risk which could impact your financial situation negatively.