How to Buy International Shares as a South African?

Currently the Johannesburg Stock Exchange has about 360 listed shares. The investment opportunities are shrinking every year. There was a time when the JSE had over 600 companies listed on it. If the trend of diminishing opportunities continue then looking for investment opportunities in South African will limit the results we can achieve.

The local market in my opinion is currently a good place to look for future value in some segments of the market, however South Africa's current economic situation brings up the question:

"How to Invest in Shares outside South Africa?"

Well, read below to find out what you can possibly do to own international shares from various countries like France, Spain, USA, UK etc.

My Personal Experience

When I started investing I had very little capital. I had R300 that I wanted to save. So I deposited it into my Easy Equities account. Every time I got the opportunity I would transfer R20 or R50 or R100, sometimes I would transfer as little as R5. Having little funds did not serve as a hindrance to my investing. Instead I think it made me more disciplined. I was always aware that I must make the best investments in order to stretch the little I had. Eventually I saw that I could not rely on the South African market alone so I needed to branch out. Diversification is an important part of investing, especially diversifying where your assets come from (geographic diversification).

Sticking to just one country/market is very risky. It is however difficult to do when you do not have a lot of capital. When I started investing offshore Easy Equities had not launched their USA product yet so I did not have a good low cost broker to start my international portfolio with.

So how do we go about owning some stocks outside South Africa?

There are a few options I have listed, starting with the worst option and ending with what I believe is the best option to own shares outside South Africa.

Worst Option: "Contracts-for-Difference" aka CFD's?

In my desperation to start investing offshore I turned to IQ Option which at the time was offering binary options on some USA listed assets. These investments did not go well for me. I started my journey with a lump sum deposit of $600, which was about R7000 at the time.

I made a total loss of R2000 before calling it quits. I figured since binary options expired I needed something that did not expire. So I turned to Stock CFD's from Trading212.

This went well for me but I disliked the use of leverage and that when buying a CFD I do not own the underlying asset but rather I am tracking the price movement. However until today my best investment ever happened while using Trading212. I made R22 000 from a R1000 investment in a singe day from shorting the British pound and UK companies through CFD's during Brexit Day, this was by chance though and returns like that in my experience do not happen often if ever they do. That result is an achievement I have never repeated again. So lets look at CFD's and what they are...

So what are CFD's?

CFDs are a derivative product that enable investors to speculate on financial markets such as shares, forex, indices and commodities without having to take ownership of the underlying assets. Investors speculate on the direction of the price of the asset. Investors don't buy or sell the underlying asset (for example a physical share, currency pair or commodity). They buy or sell a number of units for a particular financial instrument, depending on whether they think prices will go up or down. For every point the price moves , the investor will make a profit or loss. Eg: you buy 1 CFD of Apple shares (which means you believe the price will go up). If the price goes up as speculated by you then you will make a profit, if the price goes down then you will make a loss.

As you can see this requires investors to still think about an asset as they would if they were thinking about purchasing the underlying asset. CFD's have a few advantages:

1. Leverage. With a CFD you can access leverage which enables you to borrow money from your broker to invest more than you have in your account. This increases your gains but also increases your losses.

2. Going Short. You have the ability to bet against an asset by shorting it. When you speculate that the asset price will drop you may borrow the shares at a higher price and return them at the lower price and pocket the difference of the old higher price and new lower price. This is great for hedging and making money when prices are falling.

3. Similarity to Underlying market

The main benefit of CFD's is that they are designed to resemble the underlying market. Thus buying or selling a CFD is meant to be as close as possible to actually transacting in the underlying market. 1 Facebook CFD contract must resemble 1 Facebook share and the price will always match. This is what enables CFD's to be a great way to invest in offshore assets as they are readily available more than actual equities. Some brokers also pay dividends on CFD's and unlike actual shares there are generally no fees such as commissions for CFD's.

From my perspective the main draw back of CFD's is that you never own the underlying asset. Here at Money Mondays we are believers in owning assets instead of just price tracking, so this is a huge draw back. If the price drops far enough your capital will be lost and you will have nothing to show for your investment. CFD contracts also cannot be used to calculate your asset holding as they are not assets but rather really a smart loan agreement between you and your broker.

So should you use CFD's to invest in international shares?

yes, if you understand the risks and no if you are not confident that you can properly manage the risk they add to a portfolio and are more interested in owning the underlying asset.

Where can you get international CFD's?

Trading212, IG Markets and Etoro. These are three brokers I recommend you check out to access offshore CFD's. I have experience with all of them except IG, IG Markets was what I was going to use before using GT247 and EToro, so I did do some research on them and was pleased with their service but I just personally did not like their offering, it felt bulky.

So What if you don't want to use CFD's, what are your options?

There are a few options available to would be investors, unfortunately some are not affordable. If you are just like me and starting out with R300 then Easy Equities will be your best option.

1. FNB Global Trader: The Global Trader account from FNB enables investors to invest in over 30 different markets. It is a great offering but however it is a very expensive option. First you need $10 000 to open an account and then you will pay high commissions per order (investments/transaction).

2. PSG Off-Shore Account: The PSG Offshore stockbroking account is one of the best offerings from a major firm. It comprises of over 30 different markets and gives you access to various other features. However just like the FNB offering it is riddled with fees and is really directed at middle class individuals or people with R100 000 to spare and can afford the fees. The account has fees for just about everything.

3. Standard Bank: Standard Bank offers offshore investing as well. They have a great online platform called webtrader which gives access to over 90 markets. The platform also has CFD's, ETF's , bonds etc. But just like all the accounts offered in the mainstream the account is riddled with fees. These fees include a monthly fee and commissions.

There are a lot more local and global players I could add on to this list however suffice to say that most will have the same problem. The fees. Don't get me wrong the fees are sometimes worth it in some cases. There is a lot of good extra services on offer that can enhance your investment experience. But as a novice the extras will not do you any good but rather will be distractions. Distractions that can lead you to make unnecessary investments.

So for us not so fancy folks what options are there to invest offshore?

In my humble opinion if you are a novice investor or have a small amount of capital then you should be using Easy Equities. Why? Because of the very little fees and the ease of transacting.

Easy Equities

If you don't know, Easy Equities is a low cost Stock Broker, they offer a very simple and cost effective way to invest. I found them back in 2015 and have been using them since to buy JSE Listed assets. You can deposit any amount of money and there are no "minimum size orders". Minimum size orders are the least amount of shares you can place an order for. So basically you can buy one share or as many as you want. Other brokers dictate the minimum amount of shares you can buy. This forces you to spend a specific minimum or more in fees and commissions. Not having a minimum size order is great when you have a small account cause it means you are not limited in regards to which shares you can buy.

At the time of writing Easy Equities only offers a few USA , Australia, UK and European listed shares and ETF's and have a limited amount as well. In my experience I have found though that if you request a certain instrument(share) it can be added in the future. If you are just starting out than too many shares may in fact serve as a hindrance. Sometimes it is best to have a limited list to choose from. This can help you to sharpen your asset picking skills.

The usual popular assets are available such as FAANG: Facebook (FB aka META), Amazon (AMZN), Apple (AAPL), Netflix (NFLX); and Alphabet (GOOG). But if you are looking for something less popular then you will be out of luck on Easy Equities. However I still recommend Easy Equities, the cost to invest is low and the ease of their online platform or mobile app is something you will not get anywhere else.

One other key thing about the Easy Equities USA/AUD/UK/EURO accounts is that they are denominated in the currencies of those countries/regions. This means you either have to deposit those currencies into the account or exchange your Rands for them on the platform . Easy Equities does offer competitive exchange rates and fees but if you can get a better exchange elsewhere deal then go for that. The one perk of investing in foreign currencies is the long term appreciation of those currencies against the Rand. This effectively means you are technically also invested in those currencies. If the Rand was to ever extremely appreciate against those currencies then you may have a bit of a problem, highly unlikely but still something to be aware of.

Key Take away:

1. Minimum Deposit: R10 (there after any amount)

2. Minimum Order Size: None

3. Number of international assets: 400 +-

4. Withdrawal fee: None

5. Exchange Rate: Fair

What if you still want more but without breaking the bank...

Etoro

The main investment platform that I recommend for buying international assets is EtoroeToro. Etoro This is the worlds biggest social trading and investment platform. The platform has over 10 million active users who use it to trade and invest every day. The company is regulated by both the Financial Conduct Authority of the UK and the Cyprus Securities and Exchange Commission.

What are the costs on Etoro?

In regards to international shares EtorEtoro is so far the least expensive option for South Africans. The platform offers 0% commission and fees on stocks. This means you do not pay to invest at all. There are over 10 markets to choose from and over 3000 stocks and ETF's to invest in. The one thing I do not like about Etoro is the $5 withdrawal fee and $30 minimum withdrawal amount. Since this fee is waived with a large account it feels like the little guy is being punished here. I however understand why they charge it, there are not any fees on stock investing on the platform and it encourages few withdrawals. My view is that Etoro is really for long-term investments and structured withdrawals of profits.

Etoro

The Etoro platform is simple to use and features good resources such as analysis and news.

It is my secondary brokerage account where I keep long-term savings and make long-term investments. You can use the platform to make short-term investments/trades as well. I just prefer it for building a portfolio.

Etoro, Easy Equities and IBKR (I will make a video on IBKR soon) are my main brokers for now.

Key Take away:

1. Minimum Deposit: $200 (there after any amount)

2. Minimum Order Size: varies with instrument

3. Number of international assets: 3000+

4. Withdrawal fee: $5

5. Exchange Rate: Fair

In conclusion, there is a lot of opportunities with global assets, one just has to find a way to access them. Remember to follow a well thought out and structured investment plan before investing. If you wish to learn how to invest with a clear process then click here to find out about the Money Mondays Investing Mentorship Program.

Happy Investing.

- Omega

Remember: Opinions expressed in this article do not and never will constitute financial advice. Every persons financial situation is different, I recommend you speak to a financial adviser about yours.