You don’t have to be an expert trader to benefit from the stock market

CIARAN RYAN: Even seasoned investors have a hard time keeping up with the moving parts in the financial markets and the range of options available to them. You’ve got bonds, you’ve got stocks, you’ve got unit trusts, and much more besides. If you’re having a hard time understanding the local environment, multiply that complexity a thousand fold once you move offshore. Few people have the time or resources to track the tens of thousands of investment options available around the world.

Well, it’s time to demystify the world of investment. You don’t have to be an expert trader to benefit from the stock market. You’ve got the option of a managed portfolio service if you’re not an expert in this subject matter.

To help us sort through this, we’re joined by Grant Meintjes, who is head of trading at Nedbank Private Wealth Securities.

Hi Grant. For somebody about to embark on their investment journey for the first time, where should they start? Do they need to understand the reasons why they’re saving and investing in the stock market as a first step?

GRANT MEINTJES: Hi there. Thanks for the call. Your primary first step is to understand what you are going to spend your hard-earned money on. I think most of us have a vested interest in the stock market already through a pension or provident fund, but, as we know, only 6% of people retiring will retire comfortably. You’d have to have additional investments or savings to make up that little difference to retire comfortably.

So if you look at what you’re investing in, you need to have a look at what you want to achieve. Is it a short term investment? Is it putting money away for a kid’s education, or are you saving for your retirement? That goal that you want to achieve is going to link into how long you should invest in that product.

So, for people starting out in investing, you could have a tax-free savings account in which people can invest R36 000 around a year. There’s no tax payable.

You then get to invest in exchange-traded funds [ETFs]. Exchange-traded funds also make it easier and a little less complex, because you’re buying a basket of shares that is managed by a company on your behalf, so [there’s] less extreme volatility in one stock.

If you think about the stock market [last week], where Naspers and Prosus had a massive fall as a result of some political interference in China. If you had an ETF over the South African market it would be much smoother in the type of performance that you’re getting.

Now, if we link back to time horizon, if you’re saving for a college or university fund, it’s generally going to take you about 12 years [until] your kid finishes school. Or, if you’re saving for your retirement, the product that you invest in is going to differ. If you are investing for a fixed outcome, it will have a set product. If you are saving for retirement, it would have some equity exposure, some interest rate hedges, or some bonds – a combined portfolio that will achieve your goal in the long run.

You always say to yourself, do you need to start investing as soon as you leave school, or as soon as you leave varsity? Any time you start is better than leaving it for another five years.

So the sooner the better. Choose the right product to achieve your goal. We know [that] compound interest is going to help you in the last couple of years, when you will have your savings or your product that you’re investing in. So that ties back into your investment life cycle.

If we start working, we invest in a provident fund or a pension fund that will be highly geared towards equity performance, because we know over multiple years that equity outperforms all other investment classes.

So when you choose your investment portfolio, it would be highly geared towards equities. If you get into your mid-thirties and you start having some expenses, you would then rebalance your portfolio to be equity linked, with some annuity income on some other items.

As you enter the last couple of years before retirement, you don’t want the risk of equities as much as you would when you started.

You now are getting close to retirement and you have a goal around how much you want to withdraw on your pension or provident fund, or whichever investment vehicle you’ve invested in. So you know what your outcome is and you’re going to plan for that over the last couple of years to ensure that your portfolio isn’t linked to one specific share or a couple. So it’ll be nicely diversified and more linked to annuity fixed-income items at that point.

CIARAN RYAN: Grant, I just want to jump in here and talk about time horizons. Surveys have been done, and they show that very few young people are motivated by the word ‘retirement’. It’s a turn off. It’s far too far into the future for them. They are motivated by near-term goals. So if [they] talk about saving for a travel holiday or, if they’re married, for the children’s education, that’s something that they can get behind – or for a house.

So talk about the time horizons and how this ties into the investment life cycle.

GRANT MEINTJES: Yes, you’re correct. People who finish varsity these days are not that interested in a product that will mature in 40 years’ time; by the time they finish working. So there are different products available to investors where you could have exposure to the market and, depending on your time horizon, could achieve your goal. So whether it be equity exposure or a fixed-income product or bonds, I’m sure that there’s a product that could suit your needs and your short-term goals while you start thinking about the longer-term objectives.

CIARAN RYAN: Okay. Talk a little more about the investment life cycle. What does that mean? You have kind of covered it, that the earlier you start investing or saving – no matter what the objective or the eventual purpose of that saving – is better than starting late. But just talk about the investment life cycle.

GRANT MEINTJES: If you think about the investment life cycle for a person finishing varsity, and you take it that this is a long-term investment product that you want to achieve, or your goal is long term, the sooner you invest the better.

So as soon as you start investing you’ll get equity exposure, which will outperform the market and any other investment product.

As you get into your thirties and you start acquiring assets, the risk profile of your investment changes, so you’ll diversify your portfolio. And as soon as you get into your last 10 years before retirement, that makeup of your investment product will definitely change to be more income-focused than equity-growth focused, because you’ve already achieved that equity growth in the first 20, 25 years of your investment.

They’ve done a study with someone putting in, let’s call it, R500 as soon as they start retirement planning, and they do it for 10 or 15 years and stop that investment, that investment still keeps growing, compared to someone who starts at 45 and puts more into that investment at maturity.

The guy who started earlier would have a bigger payout than the person who started later. So the quick answer is ‘the sooner you start investing, the better for your outcome’.

CIARAN RYAN: I guess the question is where people can go for this kind of advice. I guess people want independent, objective advice, they don’t really want to be sold a product. So whom can they trust on this?

GRANT MEINTJES: We have investment professionals – so someone who has multiple years’ experience in the market. They would’ve completed relevant degrees, investment management, chartered financial analysts, registered stock brokers or financial planners. They would sit down with you and look at your goals or your needs, and they would provide a product or a solution that meets those needs.

We get two types of services. You mentioned it in your introduction. You get discretionary managed portfolios, or non-discretionary.

So non-discretionary is where you phone a broker and you speak about the market and you ask for their advice. That is done as and when you require some assistance.

Or you sign an agreement with a discretionary manager and you meet every year around the product makeup. You ensure that that product still meets the long-term goals. But, as and when the portfolio is rebalanced, it’s done in line with our house view models. And it’s not that every time [that happens] there is a communication to you about what’s going to happen – that is then communicated once a year to ensure that we share the portfolio with you.

So it’s all up to you what kind of service you would require from your broker.

CIARAN RYAN: All right. And is there a website where people can go and get more information?

GRANT MEINTJES: Yes, I think the digital world has grown over the last couple of years.

So Nedbank Online Share Trading has an online share trading website, where you can get access to the local-market ETFs and some other products.

It offers you access to all the information in the market. So where there are Sens announcements from companies, you can build yourself a watchlist. In short, a watchlist is a list of shares that you add, and you will see how the price moves, what have been the price targets, all that sort of stuff.

You can also then set up alerts so that when something happens in the market you’ll be notified of it. There’s some technical analysis that you can do. It’s a fully-fledged online share-trading website, which caters to younger people who want to do it themselves. As they get further down the investment journey, they can then contact an investment professional.

CIARAN RYAN: And what’s the name of the website?

GRANT MEINTJES: You can contact us at www.nedbankonlinesharetrading.co.za, or you can contact us at the contact number on the website.

CIARAN RYAN: Brilliant. Okay. And of course you are going to be joining us at the Moneyweb Better Investor Conference, which is going to be on Tuesday, November 29. For more about that you can tune in at Moneyweb.co.za for the Better Investor Conference.

Grant Meintjes, I want to thank you very much for joining us.

GRANT MEINTJES: Thank you very much, and I’m looking forward to seeing everybody at the conference.

Brought to you by Nedbank Private Wealth.

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