Episode 012: ETF Investing newbies, come this side!

Hello there! Let's chat about ETFs today. I post about them a lot on my twitter/X page, you can find it here

Investing is funny because you might read this and think goodness me, how was I supposed to know that - or you might be like - dude, how about you start blogging some more complicated stuff. Anyway, let's see how it goes, enjoy.

So, let's talk about ETFs; what they are - why you should use them and what to expect, especially when you're a newbie. First, let's talk about simple terms. You have a company, and instead of being privately owned - it decides to fund itself by going on an Exchange to list so that the public can buy shares of the company. This then translates to the company receiving funds from you and you being the cool human-being at a braai talking about being a share owner. Of course there's a guy at the back who just wants you to shut up because we're here to eat meat - now you want to talk about investing, Boooooo!.

Ok, I need you to be even more boring to that guy, because with ETFs, just one transaction can allow you to own over a thousand companies - imagine that. Now this story would send dude home.

Let me explain. Quick one, if I'm a Fund Manager, that means I manage a bunch of Funds for clients, and basically what a fund is - it is just a collection of instruments that can be Traded in an exchange, all bundled up in a basket and I just need to be smart enough to know what instruments to put in the fund so that I get the best performance for my clients.

Now imagine there's a collection of shares or a "basket" of shares, all wrapped up in one instrument. Usually, the "wrapping up" is based on a set of rules, for instance a basket would be based on the biggest 40 companies listed on the JSE. Another basket could be made up of stocks that are forecasted to pay high dividends, or it could be Tech giants involved in a buzzing word that I'm sure you have seen a lot of - AI, if you haven't, you might want to read a bit on that.

Now, notice I've mentioned the word "Exchange", you also saw "Traded" and I'm pretty sure you saw "Fund" as well. Just in case you didn't know what ETF stands for, there you have it. In simple terms, it's a Fund that listed and Traded in an Exchange, like the JSE.

The rules used to create these baskets that make up ETFs are usually written in long PDF files by big players like MSCI, FTSE, JSE, S&P, Vanguard, etc and trust me - you really don't have to read those 200 page long PDFs. But essentially, what these guys do - they create what is called an Index (helps a lot in determining the performance) and then Fund Managers get creative and list ETFs which track these indices. This is why you will see things like the Satrix MSCI World ETF, Sygnia S&P 500 ETF, etc.

Now for the good stuff.

Just like an individual share listed on an exchange, the public can buy ETFs at any time the exchange is open - using a broker. There's plenty of platforms and brokers out there who are registered and recognized by the JSE to trade in the exchange for you - so just need to find them.

The easiest way to get you started is using platforms like EasyEquities, SatrixNOW, Sygnia Alchemy and so on. Once you register, you go through a FICA process. Fintechs are great, because this process is quite quick, you not standing in a S-shaped queue for this - it literally runs in the background while you register.

Once you get confirmation that you can start investing, you simply deposit your money based on the platforms bank account details. When you log in and refresh and can see your deposit reflecting - the fun starts.

With ETFs, you could have R10 and still be able to buy it. R20k or that December bonus I know you've already spent in your head, same - you can go buy. R78 can get you 1 unit of the Satrix Top 40 ETF which gives you exposure to the biggest 40 companies listed on the JSE. Crazy! R62, you get exposure to Mining stocks. Nuts! R92 gives you exposure to over 1600 World listed companies like Microsoft, Tesla, Nvidia and so. Do you realize that these amounts are what you spend on a cup of coffee, daily. I'm not saying quite coffee - I'm just highlighting the scale here. This is the power of ETFs.

There are ETFs which can give you exposure to Bonds, inflation linkers, commodities like Gold/Silver, and so on. If you're reading this, you actually have over 100 ETFs to choose from, that listed on the JSE.

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There are of course, terms - everyone's favorite. There are fees to do this, nothing is free - come on. But it can really be cheap hey. For every R100 you buy a Satrix Top 40 ETF, you can pay around 10c for the management of your exposure, per year. Of course there are broker fees, things like platform fees depending on who you use - and there's of course the Tax man - which we can chat about on another blogging day. Of course there are risk scales involved - where different ETFs are more risky than others in terms of losing money over the short term.

If you want to invest for the long term, putting some money aside for the little one big school, university, or investing to take out your money out in like 7+ years - you must think about ETFs.

Alright my newbies, I now set you out in the world of ETFs. Go and have fun 👍🏾 😁.

Till next time!