How to invest in the JSE Top 40 Index
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Index investing is a simple, beginner-friendly way to get started on the stock market. We’ll go over some of the most popular ways to do so, to help you be better informed and equipped to make your investment.
Where can I buy into the FTSE/JSE Top 40 Index?
What is the FTSE/JSE Top 40?
The FTSE/JSE Top 40 Index is the benchmark index for tracking the performance of the Johannesburg Stock Exchange (JSE). It consists of the 40 largest stocks on the exchange, which collectively make up about 80% of the total market capitalisation of the 400 stocks listed on the JSE.
Is it a good investment?
That’s for you to decide, but it definitely can be. The Johannesburg Stock Exchange is the largest stock market in Africa. By buying into the 40 most prominent companies on the continent on the verge of a boom in both population and technology, you’re giving yourself a chance to realise significant long-term gains. If you can manage to buy and hold through the usual bumps and bruises that the market inevitably dishes out, even better.
How do I invest in the FTSE/JSE Top 40?
Here are three steps that we recommend:
- Choose an investment type
- Use our top tips to succeed
- Choose a platform to invest with
1. Choose investment type
The investment type you choose should fit with your personal investment goals, so it’s important to give it a lot of thought:
An ETF (Exchange-Traded Fund) is an investment fund that you can trade on a stock exchange during regular stock exchange trading hours, in the same way you would trade an individual stock. The JSE Top 40 ETFs are inexpensive to trade compared to some other investment types, and offer a good combination of diversification and flexibility. The JSE Top 40 ETFs can include various groups of assets, such as bonds, commodities, or in this case the stocks in the FTSE/JSE Top 40 Index.
Another approach is to buy a bunch of individual stocks within the FTSE/JSE Top 40 Index (or even all 40 stocks) in separate trades. You can then gradually sell the worst-performing stocks one by one, until you’re left with a small group of the exchange’s best-performing stocks to hold for the long term. This is a more expensive and more time-consuming process than, say, buying an ETF, so it’s only recommended for more selective investors who have lots of time and money on their hands.
An index mutual fund (also known as an index fund) is an investment fund that brings in pools of money from many different investors, then combines that money to track a specific index, such as the JSE Top 40.
JSE Top 40 funds can only be bought at the end of the stock market’s trading day, unlike a JSE Top 40 ETF which can be traded at any point during trading hours, and they also cost more to trade and to own than ETFs do. Given those factors, mutual funds are generally the best option only if you’re looking to buy and hold an investment in the FTSE/JSE Top 40 Index fund for a long period of time.
2. Use our top tips to be a successful investor
Here are Invezz.com’s top tips for how to become a successful investor. Keep these in mind for your best chance at success:
- Do your research. Although the FTSE/JSE Top 40 Index might look like an attractive investment option, you should take the time to compare it to other investment opportunities before putting your money in. The best approach is to research and build a personal investment plan. That way, you can avoid having your judgement get clouded by emotions such as fear and greed when the time comes to make key investment decisions.
- Set a budget. Consider how much you can afford to lose before you invest. To manage your risk and limit the size of your losses, you can then set a stop-loss order after you make your investment. For example, if you don’t want to lose more than 10% on your trade, you would set your stop-order price at a level 10% below your purchase price.
- Select the right platform. It’s important that you know your investment goals before you pick an investing platform. For instance, If low transaction fees are your top priority, you should probably choose an online broker. If you want high-level investment advice, it might make sense to choose a financial advisor instead.
- Grow your investments gradually. Unless you’re spectacularly lucky, you’re probably going to make a bunch of mistakes as a beginner investor. That’s why it makes sense to invest just a small amount of money at first. You can raise the size of your investment later on, after you’ve sharpened your investing skills.
- Think long-term. Thinking long-term means always having an eye on your aims. It means not obsessing over one setback and remaining patient and disciplined – you want to ensure that you’re always making progress and not getting lost in the small stuff. Keeping an eye on the future helps improve your chance of making sound investment decisions that result in impressive gains.
3. Choose a platform to invest with
Here are the best ways for you to get started:
- Brokers & trading platforms. Online brokers offer consistently low transaction fees and easy-to-use platforms. They also provide a range of investment tools, and many investors find them the best way to buy, sell, and trade a variety of financial products. That said, if you want more custom-tailored investment advice, you may want to look at some of the other options.
- Robo advisors. Robo advisors are automated systems that use algorithms to execute trades automatically, making them an easy-to-use investment option. Robo advisors charge fairly affordable transaction fees – another plus. Also, some robo advisors will let you discuss investment strategy with an actual person, giving an extra bit of customer service you won’t find with many brokers. That said, robo advisors don’t quite offer the same level of investment guidance that dedicated financial advisors provide.
- Financial advisors. Financial advisors offer the most hands-on investment advice. They’ll help you set financial goals, explain the pluses and minuses of lots of investment options, and help you build an investment plan that makes sense for you. Financial advisors charge a premium for this high level of service, however, so you have to decide if they’re worth the price. Since indexes are fairly simple, a financial advisor probably isn’t necessary in this case.
- Banks. If you’re looking for convenience, your bank is one of the best ways to invest in the FTSE/JSE Top 40 Index. It enables you to store all of your financial ventures with the same financial institution. Banks often charge high fees for investments, though, without offering the same level of service that top financial advisors provide. You can probably pick a less expensive and/or more helpful option somewhere else.
Here’s our top recommended broker
What should I do now?
If you’re ready to invest now, go to your online broker’s website, pick the type of investment you want to use, and click buy. Congratulations, you’ve now invested in one of Africa’s most influential indices.
Try some of our investment courses for beginners
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Invezz is a place where people can find reliable, unbiased information about finance, trading, and investing – but we do not offer financial advice and users should always carry out their own research. The assets covered on this website, including stocks, cryptocurrencies, and commodities can be highly volatile and new investors often lose money. Success in the financial markets is not guaranteed, and users should never invest more than they can afford to lose. You should consider your own personal circumstances and take the time to explore all your options before making any investment. Read our risk disclaimer >