15/06/2021
" I have X amount of money, which companies should I invest in?"
This is a common question that new investors ask.
There are more than 300 companies on the JSE alone (the largest stock market in Africa). And there are more than 2 500 companies on the NYSE (the largest stock market in the USA) and there are thousands of other companies listed on different stock markets of many countries all over the world. How on earth will you decide which company to buy if you are completely new to investing?
Here's my opinion, if you do not know which company to invest in, just buy many companies or all of them by investing in Exchange Traded Funds (ETFs).
What are ETFs?
ETFs are Funds that are bought and sold on the stock market. These Funds are made up of a list of different companies all grouped into one product.
Think of an ETF like a fruit salad, where the different fruits represent different companies. If you can't decide whether to eat an apple, or a banana, or a plum, or grapes, or a pineapple, or an orange, you can eat all the different fruits by making a fruit salad.
If you can't decide whether you should be investing in Vodacom, or MTN, or Pep, or Clicks, or Dischem, or Shoprite, or Spar, or Pick n Pay, or Woolworths, or Capitec, or Standard bank, or Nedbank, Truworths, or Mr Price, Impala Platinum or Coca-Cola, or Netflix, or Pfizer, or Johnson & Johnson, or Apple, or Facebook, or Tesla, or Miscrosoft or Nike or, McDonald's, or Disney, or Mastercard, or Visa, or (you can fill in all the thousands of options here), you can buy an ETF that has all or most of these companies wrapped in one product.
For example:
- If you buy a Total World ETF, you will own 9000 companies from 49 countries.
- If you buy an S&P 500 ETF, you will own the largest 500 American companies.
- If you buy a Top 40 ETF, you will own the 40 largest South African companies.
ETFs save you from the pain of trying to choose the perfect company. You just buy a group of them at one go. What more could you ask for?