The Best Ways To Invest R1,000 to R100,000
When I hear this my blood boils….
I’m sure you’ve heard it too.
That most investors think you need gigantic amounts of money to start investing.
It’s actually one of the most popular stock market myths out there!
And it’s just not true.
What if I told you that you could become an investor right now with as little as R300?
Don’t get me wrong, having more to invest certainly helps too though!
That’s why I want to show you the best ways to invest R1,000 to R100,000 and more…
How To Invest R500 – R1,000
I’m sure you probably think that R500 won’t go very far.
But you’d be surprised where it could get you!
If you don’t have a lump sum to invest, you pretty much have two options.
You could either start saving money each month and grow a pot of cash for you to eventually invest…
Or you could look at the types of investments that don’t specifically require a lump sum.
Two great vehicles are ETFs and Unit Trusts.
The beauty of these is that they allow you to start investing from as little as R300 a month!
(This obviously depends on the fund as each have different minimums).
But by doing so, month after month, you can slowly build up your holdings and portfolio, which would give you more investment options down the line.
I personally love ETFS!
And I really believe every portfolio should include them in some way, shape or form.
If you’re a first time investor or a beginner, even better.
ETFs offer you diversification at the click of a button, are extremely tax efficient, flexible, easy to use and are very cost efficient.
This makes them the perfect beginners investor tool.
The other great thing about ETFs is that you can gain access to a number of different sectors, usually reserved for the bigger portfolios, all with a few hundred rand each month.
The government also understands how important it is for you to put away for your retirement, and have even gone as far as creating a tax free savings account you can use to specifically invest in ETFs.
And when you do, you don’t pay a number of fees and taxes you normally would when investing!
That means you can put that money back into your portfolio and let it compound as long as you invest it.
There is a monthly limit though, and for the time being you can only invest a maximum of R2,750 per month every year (with an annual limit of R33,000).
You also can’t put in more than R500,000 in total over any period (this doesn’t include the growth on the initial R500,000).
For me, EVERY investor in South Africa should have a Tax Free Savings Account, it really is a “no brainer”.
The one difference you also need to know about ETFs and Unit Trusts is that as a general rule ETFs are passively managed whilst Unit Trusts are actively managed.
Passively managed funds simply track sectors and indexes, whilst actively managed funds have an actual fund manager behind them pulling the strings managing the fund.
The problem at this level of investing is that active funds translate to higher fees.
And the last thing you want to do is pay more than you have to on your investments.
So, if you’d like to start investing in ETFs today, click here to find out how you can begin.
How To Invest R10,000
At R10,000 most brokerages are willing to talk to you in terms of opening an account.
This seems to be the popular minimum account size for a lot of brokers across the country.
Having worked at one, I can tell you most don’t look at smaller amounts because as a business it’s tough to make money out of those smaller clients.
The same could be said for the reverse though…
If brokers struggle to make money from you (in the short term) as a client investing R10,000 or less, does that mean you’re primed for profit?
But it also depends on how you invest at this point.
If you’re going to invest in single stocks, you might have trouble growing your account.
I’ve always stuck to the rule of never investing anything less than R5,000 in a single stock.
And it’s all because of costs.
You see, whether you buy R500 or R5,000 worth of stocks, your transaction costs will normally amount to around R100.
So only once you start investing over R5,000 will that cost be 2% or less.
And this is extremely important, because it makes it a lot easier for you to make money in stocks.
What’s the point in buying R1,000 worth of shares and then paying another R100 in costs?
All that’ll end up happening is that the stock itself would need to move up 10% for you to just break even!
So remember, the less you invest per share, the higher the percentage you’ll pay in fees and costs, which means the higher the position needs to rise in order for you to make money.
You really don’t want to be doing that to yourself as an investor.
Growing an account that way is tough, and not recommended.
Like I said, with R10,000 it’d be unwise to consider investing less than R5,000 per stock.
So that would only get you two different companies to invest in.
That’s why looking at index funds, ETFs, Unit Trusts or the like are still a better option at this point.
With all this in mind it’s probably a safer bet to pop your extra R10,000 (or whatever the amount is) into your Retirement Annuity, or even your monthly ETF / Unit Trust investments if you have any.
Another investment option you could look at are new property developments.
It’s almost a “no cash down” way to invest in property, and you can kick-start your property portfolio using other people’s money in the process!
How this works is you can put down a smaller amount, say R5,000 – R10,000 on a R500,000 property.
And because these properties are newly developed, you won’t have to pay a cent in costs and could get a 100% loan from the bank.
Pop a tenant in the property on day one and you could start making money immediately!
Alternatively, if you don’t mind a little more risk you could trade derivatives.
They are risky though, and trading is an entirely different ball game to long term investing.
Again, you’re not exactly going to break the bank with that amount, but it is an option depending on your risk appetite and a good way to get started trading the market if you’re interested in it.
How to Invest R25,000 - R30,000
Once you start getting to the R30,000 mark you can start looking at building a stock portfolio.
Keeping my R5,000-per-stock rule in mind, R30,000 can allow you to invest in up to 6 different companies.
This gives you some diversification in your portfolio.
There are a few things you need to consider when deciding whether or not you’re going to start investing in stocks at this point.
Obviously that R30,000 is a good starting point.
But you need to be prepared to put this money into the stock market for the long-term.
If you’re going to need this money in the short to medium term, don’t invest it.
The whole point of investing is to let your money and gains compound, thus growing your portfolio exponentially in the long run.
Remember, the key to investing successfully is time in the market.
One important point to remember is that your age and where you are in your investment journey should also dictate how you invest.
Naturally with the above I’m talking about a first time or beginner investor using their first R30,000 in the market.
But how old you are, and your investment experience should also indicate where else you should put that money.
If you’re young and fairly new to the investment game starting your portfolio is a good place to begin. Alternatively, you can consider equity Unit Trusts (funds that invest in stocks).
Although riskier and more volatile, these can yield high returns if you stay in the market long enough.
And in most investment circles it’s a common rule of thumb that you can take higher risks as you are younger.
If you’re middle aged, you could consider less exposure to equities through a balanced fund.
And for those closer to retirement you should consider cash or a fixed income Unit Trust.
This is safer as these assets are less exposed to fluctuations in the market, something you can’t afford at that point in your retirement journey.
Another investment option you could look at with this amount of money are undervalued properties.
If you uncover the right opportunities, you could create positive equity from day one!
The goal here is to find properties selling for less than their real value.
That means, from day one, the undervalued property can increase in equity value.
Opportunities like these are sometimes tricky to find, but they’re out there, and if you know where to look then you could find yourself profitable sooner rather than later.
Undervalued properties also tend to require a larger deposit than new developments.
So you could end up having to put down anything from R30,000 to R50,000 or more.
How to Invest R50,000 – R100,000 (And More!)
At this stage, and with this amount, you can look to the long term with a far broader perspective.
You can start to build a really diversified portfolio and start including other asset classes and instruments.
Things like preference shares, bonds, stocks, ETFS, Unit Trusts, commodities, offshore stocks, property etc.
You can also look at different portfolios as well.
You can run more than one at the same time you know!
You could run a defensive portfolio, a core portfolio, a dividend portfolio and so on.
The more you have to put in, the greater the options you have to invest.
And you can tackle the market in a far broader, more diversified fashion.
Outside of stocks, two other options you can look at are on the property side.
With this amount of money auction houses could be hiding some real gems for you to invest in.
Some of the best property bargains you’re likely to find lie in repossessed properties!
Heck, I’ve even seen properties going for a 30%, 40% and even 50% discount to their market values!
And that’s what an auction can put on your doorstep.
But you need to remember that at auctions you’re required to pay a 10% deposit if your bid is accepted.
Another thing that you need is to have your loan approved for the amount that you’re bidding on.
Well thought out and well planned auction investments allow you to make the most money in the shortest period.
If you’re new to auctions, rather familiarize yourself with the property market through developments and undervalued properties first though.
Auctions are a world unto themselves, and going in with little to no knowledge is extremely risky.
If you have more than R100,000 to put down and still want to go the property route, then ‘flipping’ could be a great option.
Buying broken down properties and fixing them up is a fantastic way to increase the value of a property and sell it at a healthy profit.
Find the right investment opportunity and you could easily add tens of thousands, if not hundreds of thousands to the property’s value.
One tip to keep in mind is that any money needed to fix up the property itself needs to come from your pocket.
These days, banks don’t like approving loans that’re bigger than the property’s value.
Alternatively, another option you could (or should) consider investing in is a retirement fund.
By doing so you open yourself up to great tax incentives.
You see, these savings vehicles are specifically designed to protect, and more importantly grow your retirement nest egg.
As with any investing it’s crucial to start sooner rather than later, as not only will this save you money in the long run, you’ll also give your money the chance to compound.
Whichever road you go down you need to know what you’re investing in.
Understand where your money is going, the growth history and returns of what you’re looking at, how to keep track of it all, and that you’re considering an organization or fund that you can trust.
Invest The Right Way Today
Successful investing is less about how much you have, and more about what you do with it.
Whilst it can take a little longer to build up a solid portfolio using smaller amounts, it’s still better to do this than not do anything at all!
If you have a smaller amount to invest, look at ETFs or Unit Trusts and pay in a monthly amount towards them.
If you’re keen to ‘upgrade’ to stocks, don’t look at anything less than R5,000 per stock.
The last thing you want to do is pay your broker at the expense of your growth…
Once you start getting to the R30,000 mark you can start to build a diversified portfolio.
And anything around R100,000 or more allows you to diversify even more, and put on more positions.
One of my favorite quotes from the stock market is “investing is simple, but not easy”.
And it totally rings true today.
All you need is the right information, some hard work, the willingness and hunger to sweat it out, and successful investing will be something you do on autopilot.
Until then, here’s to profitable investing.
The Money Lab