dear africa – ETFs

Dear Africa

Why do you invest your hard-earned money in pyramid schemes like Kipi/MyDeposit/MMM or whatever the latest Russian fraudsters comes up with? Why?

Relax, I’m not going to ask the hard hitting questions again, by popular demand, today’s letter is meant to be educational. I want to share my little knowledge about etfs.

Exchange Traded Funds (etfs):
an etf is an investment product that tracks the performance of a basket or group of shares or other commodities like oil or gold. Etfs are self managed, which makes their administration costs very low. At worst, no companies should charge more than 1% for an etf product. This admin charge is called TER(Total Expense Ratio), always look out for that percentage when you choose an investment.

etfs are also very highly diversified by their nature, their risk profile is very low, but surprisingly, they always beat the inflation, and in most cases also outperforms a lot of (expensive) highly-managed products by quite a margin.

An example of an etf is the top40, there’s different variants of this etf, but fundamentally they track the performance of the top 40 performing companies in the market. When a company is not doing well, and it drops out of the top40, the etf will also automatically drop it, minimizing losses. There are many etfs on the JSE, the last time I checked there was about 38 of them, I stand to be corrected. So you have plenty of options. They range from property to gold, to government bonds, to global markets and sectors.

Another great advantage of etfs is there’s no barrier of entry, anyone can buy them with very little money. I personally recommend easy equities for anyone who wants to start. But there’s plenty of other places where you can buy etfs. FNB has the Share Saver and Share Trader accounts. Absa also has a stoke broking account, you can ask for etfs only account. Satrix, etfsa, and plenty others. Do your homework.

Not to be confused with efts. He’s a challenge, from next month, out of the many efts that you do per month, make sure that at least one of them is going into an etf. Deal?

Don’t be put off by any jargon, I also didn’t study accounting. I use this website whenever I come across a term I’ve never heard before. as the name suggests, it is the Wikipedia of investments.

So vele, why did you put your money in Kipi? Want to get rich fast? We all do, but it’s a pity that only superstars, entrepreneurs or lotto winners have that luck. So unless your surname is Kardashian, Messi, Mayweather or Zuckerberg, you have to follow the slow process of accumulating wealth, same old one used by Buffet, otherwise you can leak your nudes, start playing sport or start a Facebook rival app.

Disclaimer: I’m not a financial advisor.

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