“I’m sitting with some cash and would like to invest it so I can get good returns on it. I have no knowledge of the investment game but I am looking at a long term investment. I’ve noticed the buzz around Capitec Bank and I would like to ask you if it would be a good idea to buy some of these and let them lie for a decade or two?” asks Oliver.

Maya replies:
It is not clear if this is your only investment, if it is then investing all your long term money into one share is a risky option.

Capitec has performed extremely well which is what has created the “buzz” in the market. Certainly you would rather invest with them than borrow from them! However one also needs to be careful of buying shares in a company when it may be overpriced due to market hype. It will be more difficult for Capitec to repeat its past performance as it is now a much larger company and it has to remain innovative and competitive in what is becoming a very challenging space. Capitec’s main business remains lending, especially micro-loans, and there are fears that consumers have become over-indebted. This in turn raises the risk of an increase in bad debts, in other words people not being able to repay those loans. Capitec manages their book extremely well and have a very talented team, however the risk remains. If you had a portfolio of shares this may be an option, but as the only share, it is risky.

In terms of the broader issue of where to invest your money, you should aim for a diversified portfolio with several shares; this reduces the risk of something going wrong if you invest in just one company. This can be obtained by investing in a unit trust or an exchange traded fund that invests in anywhere from 20 to 40 shares.

If you would rather have your own share portfolio then consider using FNB’s Sharebuilder which gives you access to 22 of the most popular companies on the JSE. You do not have to be an FNB client to access the services. Because there are a limited number of shares available it makes it easier to choose. FNB provides detailed, easy to understand information on each share. You can invest for R500 but given the minimum and annual fees you would want to invest R3000 to R5000 per share. You should only follow this route if you have at least R20 000 to invest so that you can buy at least five different shares providing some diversification.

There is an upfront fee of 2% which includes all your costs but with a minimum fee of R50, so you will pay R50 for any trade up to R3000. There is a monthly management fee of R17. Once you are comfortable investing you can migrate to FNB’s Share Investor Platform which allows you to invest in the full range of shares.

Standard Bank’s Online Standard Bank’s Auto Share Invest (ASI), allows you to invest with a R500 monthly debit order. Every month you invest R500 or more and on 25th of each month Standard online will buy the shares you have chosen from their range of selected shares, which includes the 40 most popular shares listed on the JSE. The costs are around R25, which works out to 5% on a R500 investment. This means that the share price must first increase by 5% before you are making money. The higher the monthly amount, the lower the flat fee becomes as a percentage of the invested amount.

This article first appeared in City Press