What Tools do you need to Invest in shares?

#investing #JSE #shares #easyequities #finance #trading212

Most people think being an investor is expensive and is only for the rich and thus is not accessible, this thinking is further driven by the fact that when you check out a lot of online "traders" or "investment gurus" they have a ton of equipment such multiple screens, computers etc. with special software and other stuff which all looks expensive. In my humble opinion I think most of the "investment tools" people show online are put there to make their setup look "cool" , in other words they are just props being used to sell you stuff. Truth is if you shop around you will find some simple high quality tools to use to get you into the market and started on your investment journey. In this post I discuss which tools you need to be an investor regardless of your budget. I have broken down this post in to three sections which are legal structure, technology/tools you need and managing expenses. By the end of this post you will understand how to set up these tools and start investing.

Lets go…

1. Legal Structure.

The legal structure is seldom considered by novice investors. I assume this is because just like me when I started they do not know they have options on how to create a legal structure that benefits their investment objectives. For the purposes of this post I am going to assume that you are an individual looking to start investing on your own and thus will present two potential legal structures. The first being a sole proprietorship and the second being a private company.

Sole proprietorship

Sole Props are businesses that are owned and generally operated by an individual as well. Basically the individual is the business and when he/she dies the business dies with them.

The person is the exclusive owner of the business, entitled to keep all profits after tax has been paid but liable for all losses; a sole trader. Sole props have a few benefits such as being easy to set up since there is no need to register one with the CIPC, the business is formed by you declaring it as such and the paperwork of the company is really no different than your own ID book and proof of address.

Investing as a Sole Prop Because the sole prop is not considered as different from you when you buy shares they are bought and listed in your name. This means any activities related to the stock you have purchased are referenced to you, eg: AGM meetings, dividend payments and corporate actions. As a sole prop you also have full and sole control of your investment account.

Banking as a Sole Prop Banking as a sole prop is simple and easy. Opening an account can be done at almost every bank just using your own ID and Proof of Address. The costs are also low as well and easily manageable. In my opinion the best account is the First Bank Zero Account by FNB which is a R0 monthly fee account with great digital features. However the account has a few pay-as-you-use costs, they are easy to manage but are in most cases the standard PAY-AS-U-USE fees from FNB so costs can mount easily if the account is mismanaged. Thus to keep costs low but still have relative quality banking Tyme Bank offers a great sole prop account that has the lowest fees in the market. The other banks are in between and have standard features and fees. So for your banking needs as a sole prop you are spoiled for choice but keep in mind that you want to focus on keeping costs low so you can dedicate your capital on investing and not expenses. One tip I would offer is that when you choose your bank ensure it’s a different bank than your personal account bank so you do not end up easily transferring money from your investment account and spend it out of need.

Tax as a Sole Prop When investing as a sole prop there are the standard taxes to consider that are associated with investing. One is Capital Gains Tax that is incurred when you dispose the asset at a gain and the second is dividend tax which is deducted from earned dividends. Most investment platforms automatically apply the dividend tax and give you a certificate to use when you file your taxes. Capital Gains Tax is also automatically applied in some cases however mainly falls on you to pay and report as part of your general taxes. A very key aspect of the sole prop is that your income from your investment activities is added onto your overall income which can potentially cause you to go up the income tax bracket and most importantly as an individual you are taxed before expenses so any expenses you incur as a result of being an investor are not factored into your situation, so make sure that you understand the tax consequences of investing in order to prevent unwanted tax issues down the road. SARS always comes back for you at some point. (Note: I am not a tax expert so I recommend you speak to a tax advisor about your individual situation.)

Estate Planning Shares bought as a sole prop form part of your estate and will be easily transferred to your beneficiaries by your broker but be warned not all brokers function this way so it is important to have a will with a trustee who will store your account details and be able to liquidate your account and withdraw the cash for the benefit of your dependents or risk losing the money. If you have a will (which I recommend you get) you can assign who inherits what and how very easily. So a sole prop makes it simple to manage your estate.

Draw backs The main drawback of the sole prop is that all its costs and liabilities are attached to you as the operator thus be mindful with credit and liabilities as they are your debts at a personal level.

Private Company A private company is a separate legal entity from its owners/operators (you). The company can own things on its own, initiate and face legal actions by itself and take numerous actions by itself. The key aspect of the company is that it is totally legal separate from you as the shareholder (within reason). You can register one with the CIPC. The easiest way to do so is via bizportal and has a turnaround time of between a day and 7 days in my experience. As part of registering you would hire yourself as a director (so you can control the company and sign on its behalf) and declare yourself the 100% shareholder of the company (so you are legally entitled to all benefits and risks associated with the company).

Investing as a Private Company (“Pty” for short) When investing as a Pty the shares you buy will belong to the company and indirectly belong to you by virtue of you being the owner of the company. This also means that dividend and gains are paid to the company and are thus matters of the company. Any corporate action will be directed towards the company and as director you will be able to act on behalf of the company.

Banking as a Pty Banking as a Pty in South Africa can be expensive. There is no account that is truly for R150 or less. The major banks all advertise a Pay-As-You-Use account that has basic monthly fees at R80 but with extra service fees that can easily top R400 for just a few deposits and debits and payments. So I recommend getting an account with fixed fees and only sticking to using the minimum services with in your fee structure. Go through the pricing documents and understand what you can do as included in your account and what you pay for separately. The banks are very good at knowing how to extract extra fees from people who do not fully understand their banking costs and limits. FNB and Standard Bank stand out as my top recommendations when it comes to quality and price. I would also recommend Sasfin Bank though their fees are exorbitant for the person who is just starting out. (We will do a breakdown of costs at the bottom)

Tax as a Pty Taxes from your investment activities will be separate from your personal taxes when using a Pty. The company is charged tax based on its own circumstances. Corporate Tax at the time of writing stands at 28% post expenses in South Africa. This is important to remember, companies unlike people are taxed after expenses. This means you will be taxed only on your profits and can include your expenses incurred from investing as part of your company expenses. Dividend taxes (20%) may also be exempted based on your company’s circumstances.

UIF/PAYE/Compensation Fund This is an optional step that you may take in the future if you so wish. As a director you are technically an employee of the company. It makes sense then to draft an employment contract, set a remuneration package for yourself and contribute to UIF and PAYE. The UIF is helpful to offset potential future issues that may arise in your business and may help you protect your income. Where will your salary come from I hear you ask? It can be from your investment returns such as dividends and form part of the company’s expenses or be something you deduct upfront from your capital.

How do I get my money from my company? The Pty can either pay you a dividend or salary. It is really up to you and what works for your own financial situation but remember you will pay taxes on any income you receive at a personal level.

Estate Planning The Pty is separate from you but the shares you own in the Pty are inheritable by your dependents. I would recommend that in your later years you rather transfer your shares to your dependents in small tranches until you are a minority shareholder and thus have a minor amount of shares that your dependents can inherit. The reason I recommend this is to avoid the estate taxes that may be incurred based on the value of your shares. The way you may transfer them is to hire your spouse/family members and remunerate them with the shares. (This could even be done at setting up the Pty, where you have your family as shareholders and then hold power of attorney to invest on behalf of the company; this is the beginning of family wealth creation)

Drawbacks There are drawbacks to this set up. The first one is that you do have to do a bit of work to set it up, fortunately registering a business, registering for tax, UIF ,PAYE etc is now very easy through the Bizportal website. Another drawback is the paperwork involved. In order to open brokerage accounts you will need resolutions, power of attorney, exemption forms etc. to start. It’s a day’s work to get all of this done properly while as a sole prop you do not need to do this.

VERY IMPORTANT TO REMEMBER: One of the biggest risks with Pty’s is selling your shares. If you are to sell your shares make sure you have a shareholder agreement in place that protects your company and assets from unwanted shareholders by ensuring you put preventative measures in place. You would have to consult legal advice for how to do that properly. That way you do not have your child/spouse sell their shares to anybody you do not want joining the company. Also note that to maintain the Pty you have to pay Annual Return fees to CIPC which can be very low. Those are the two options of legal structure to consider, ensure that you choose carefully and according to your financial situation and objectives. Next we will discuss the tools that you need and how to select them and their expenses.

What tools do you need?

One of the major mistakes I see people make in their finances is that they make their living expenses very high. Living expenses such as banking infrastructure can end up eating away at people's salaries. If you do the same with your investment infrastructure the expenses will eat away your potential investment capital. I am all about the inexpensive life and I use the same philosophy for my investing. So when I developed my setup I wanted to make sure that my participation in the market did not slowly eat away at my little net worth so focusing on both costs and quality became important to protect my capital.

It is important to treat your investing activities like a business and what does a business do? Simple: keep costs as low as possible while maintaining quality and maximize gains while limiting risk.

This is the philosophy you must adopt if you plan on being successful long term. See yourself as an Investment Fund with one client, yourself, and as a good company you want to ensure that your client gets the best service yet at reasonable costs but furthermore you want to keep expenses low so you can keep margins high and make more profit for shareholders (yourself). So lets look at the tools and costs. Tools:

1. Banking. A bank account is used to receive capital from yourself, transfer to the broker, receive withdrawals from your brokerage account and pay for expenses related to your investment activities. It is important you open a bank account that will not cut your gains through fees. This is tough at all the South African banks have fees that are continuously charge regardless of whether you use the account actively or not. The best thing you could do is cap your activity in order to predetermine your fees or take a fixed fee account and stick to its activity limits. Here are the fixed fees for 2020. FNB Standard Bank Absa Nedbank Average Fee Amount: R200

2. Stock Broker When I started this was a challenging problem to solve. I always promote the actual buying of stocks and not just trading CFD's. The problem is that most of the stock brokers I kept coming across had ridiculous costs. I first reached out to FNB, their basic offering of "as little as R300 per month" was just plain useless. It came with the option of investing in only the top 100 JSE listed companies which is just very limiting. The stockbroking service which gives you access to the local market came with a R25 000 recommended deposit amount for the local market and $10 000 (about R180 000 today) for the international market in the Global Trader product. Furthermore the cost to invest was high as it came with numerous fees like Commissions, Custody Fee, Currency Conversion Fee, Asset Transfer Capacity (ATC) Fee ,Portfolio Management Fee and Advisory Fee , plus other fees for other services.

Many of the other brokers from the established financial institutions had similar charges from PSG, Standard Bank, Sharenet etc. From what I discovered it makes sense why many South Africans do not invest much, the costs are staggering. If you're between the age of 25 and 35 like I am and still building your finances then odds are you do not have R25 000 laying around and can afford to invest a minimum of R100 per trade plus pay R50 commission. You need something more flexible and cost effective. I eventually found a solution and have been happy with it for the past 4 years.

So what do I use to invest? The broker I use to buy listed assets is Easy Equities . Easy Equities is a low cost broker and so their platform is not very sophisticated and lacks a lot of bells and whistles. All you get is a well designed screen with a list of assets to buy.

What is Easy Equities? In simple Easy Equities is a low cost broker that enables people to buy listed assets either as full shares or fractional shares. The platform is not very sophisticated so does not come with fancy bells and whistles i.e charts, indicators etc. Rather you get a well designed screen with a list of assets you can buy and a way to filter them based on their type.

The way stocks are listed on Easy Equities

In truth that is all you ever need, a tool to press "buy" or "sell" .The platform also enables traditional phone call trading but that comes with a fee of R50 per trade so I would only recommend using the online or mobile platform unless there is a need to call the trading desk.

What are the benefits? The reason I always promote beginners invest through Easy Equities is because of the low cost and great service. It is as simple as that. Their platform is designed to be easy to understand and is not bulky. The low deposit amount means you can deposit any amount that suits your finances at that time this gives flexibility and the ability to manage your finances and still invest without any unnecessary financial strain. One of the lovely benefits of Easy Equities is that any cash not invested in your account earns interest which is great as it protects your capital from inflation.

Fees: Minimum deposit: R10 To buy or sell (0.25%) per investment. Withdrawal fee: none Minimum withdrawal amount: none (any) What are the drawbacks? The biggest challenge with Easy Equities is that you cannot short stocks on their platform. Now this is only a problem if you want to have the opportunity to manage your portfolio like it is a hedge fund. Shorting is important to hedge against risk and to make money when the economy is contracting. So to short local stocks I use GT247

GT247 GT247 is a sister broker of Easy Equities. They offer the lowest spreads and fees for trading stock/ETF CFD’s, currencies and commodities. The only platform they offer is the MT5. Unfortunately GT247 only list the top 100 JSE Equities which is limiting and you have to pay R79 per month to view live JSE Data (a fee charged by the exchange). So if you are interested in shorting local stocks they are a great option.

Please note that when using GT247 that you can only open a margin account with them meaning there is leverage in every position you open. Leverage on each asset is detailed on their website so make sure you understand this. Leverage is the use of borrowed funds from the broker to invest/trade. It is a double edged sword as it can multiply your gains and at the same time dramatically speed up your losses. So make you you understand how leverage works before you dive in.

Fees: Commissions: R0 Spreads: asset dependent JSE Live data: R79 per month

As awesome as Easy Equities and GT247 are they have limited access to overseas markets, in fact the US market is the only international market on offer on Easy Equities with a limited list of assets too. GT247 only offers currencies, commodities and a few indexes for internationally related trades. This is a challenge when looking to invest overseas into specific assets. However their offerings are enough for novice investors..

"But i want to invest overseas too"… I can hear you say that...

One of the key reasons South Africans cannot invest overseas without paying high fees is because a lot of the overseas low cost brokers will not accept South African citizens to open accounts, I cannot tell you why but I guess it has something to do with regulations. Fortunently there is a solution to that...

Trading212 (for international assets)

The broker I use for investing internationally and shorting global assets is Trading212 . Trading212 is a UK stockbroker and CFD Broker. They are regulated by the UK FCA and are considered the UK's number 1 trading app on the various App Stores. The company offers over 2000 stocks and 300 ETF's from European countries and the USA. Sadly they do not offer African shares (non-South African) and assets which is something I have been looking at getting into. There is minimum deposit of $10 to start investing which is great for beginners. Trading212 offers fractional shares (the same as Easy Equities). this enables investors to purchase a small fraction of a share that may cost above what the investor can afford at the time. This is especially helpful for South Africans because of the Rand to Dollar difference. A stock that cost just $10 is between R140 to R190 in price for us.

One of Trading212's strong points in their mobile app, it is one of the best mobile platforms and is easy to use and very stable and has the best designed user interface and features. I use the online web platform to do most of my investments however the mobile platform is as equally powerful. Users who do not have a laptop will not be affected by it as the mobile platform is solid for use on its own.

Funding the account and withdrawing

You can fund your account using your bank card, wire transfer and other methods. My favorite method is the use of Google Pay which makes it easy to fund and withdraw payments. There is no withdrawal fee however based on your method of withdrawing the service provider such as your bank may charge you, especially if there is a currency conversion involved.

One of the best features of Trading212 is that your account can be linked to Pro Quant which is an algorithmic app that enables investors to develop their own automatic indicators that trade on their behalf. This feature currently only works for their CFD account only so cannot be directly used for investing, that is however okay as you can simply manually copy the positions on your CFD to your Investment account.

Trading212 is a CFD broker as well so this enables investors to short international assets and invest in commodities and crypto assets easily from one platform. This makes it easier to manage your international assets one platform.

Fees: Minimum Deposit: $10 Commission: $0 on stocks (UK Stocks may carry a minor stam duty) Leverage: Overnight fees are asset dependent (CFD account only) Withdrawal Fee: $0 (fees may be charged by your bank) Minimum Withdrawal amount: $10

Trading212 web platform

The principle to keep in mind when choosing a broker is that we want to keep the costs low yet still have great service and a platform that is not complicated for us to use.

3. Information Feed

The second tool you need is an Information System. This we will divide into two because of the main two types of analysis.

The first type of information platform you need is one that provides fundamental data of assets and current events. You could spend thousands here. Bloomberg Terminal which is the most popular data and information terminal for professionals has a subscription that costs about R300 000 per year, yeah you read that right, you could a good car with that money or wait 3 years and buy a good apartment. There are other alternatives like Thomas Reuters Eikon , FactSet, Capital IQ, Yewno|Edge, Symphony and Benzinga Pro. All these are great but they still carry some heavy costs such as spending between R6000 to R80 000 per year. Most of these platforms also do not provide or provide limited data on the local market and if you are like most people it is intuitively easier to start in your home market to invest in before broadening to overseas markets. My favorite out these is Benzinga but its limited to US Stocks and charges about R1400 per month for a very basic plan. So with many costs what is a young and low on money investor to do?

For local markets I use good old Moneyweb and have a paid gold subscription which costs R63 per month. Moneyweb is really great for news and has accurate data and portfolio tools for the Johannesburg Stock Exchange. The platform can serve as a great source for fundamental data and research. The platform is not sophisticated, it has a simple and clear layout and provides information in an easy to read format. Just like the Easy Equities platform the simplicity of Moneyweb enables you to focus on finding assets instead of being drawn in to trade. However a great fundamental information data tool is not enough plus Moneyweb is only focused on the local market. So what can you do for a visualization tool and international markets?

Tradingview Chart Screen

Well the second type of information tool you need is a charting tool. The one I use is Tradingview. Personally for me Tradingview is the best as it enables me to get both fundamental data and charts of local and international stocks. In theory I could use Tradingview on its own however I prefer being able to view local data on Moneyweb. Tradingview offers advanced charting systems, a stock screener, idea portal and a social element which includes chat rooms and the ability to send messages to other users. There is a free basic version which is pretty great, in fact I used the free version for a long time. The paid plan is is $14.95 for Pro plan. They also have other plans that go up to $59.95 but I think getting these is pointless unless you want to sell something to the users on the platform. Please note that both Moneyweb and Tradingview offer free services that are very good so while you are still starting out I would recommend you stick to the free plans and only once your costs are covered by your investment activities should you upgrade to paid plans.

In order to use Moneyweb and Tradingview you will need some hardware devices which brings me to the next tool.

4. Computing Power: Laptop/Tablet/Smartphone

When it comes to computing power the options are endless. I will be brief here and tell you that all you need is a computer that has a solid ability to access the internet via WIFI or Ethernet cable. I currently use a Dell Inspiron Intel i3 with 4gigs Ram and 1TB of memory, it costs R8000 but that’s because I also use it to blog, web design, edit videos and make music on it for Money Mondays. Most modern laptops with a price starting from R3500 will do well. You could also consider getting a contract which I do not advocate for but is an option. If you already have a reliable laptop then stick to it, there is no need to buy a new one. Simply create a new user on your laptop, this new user account will have your investing work only and so it will be easy for you to focus when you work. You simply download Google chrome for Easy Equities, Etoro and Moneyweb and download the desktop version of Tradingview and the desktop version of the MT5 and have an email account set-up. That’s all you need on the desktop front.

If you have a tablet then you can download MT5 and Tradingview for your tablet and chrome for Easy Equities and Moneyweb. (Easy Equities and Trading212 both have mobile versions but I have never seen how they functions on a tablet). A smartphone is a vital tool because sometimes you do not have your laptop but have to quickly do something to manage your portfolio. However you do not have to break the bank here, a good midrange Samsung will work as well as any other phone. I use the Samsung A10s which cost me R3000, prior to that I was using a Samsung J5. The A10s has been great, its comfortable to use and offers speed and memory which houses all the APPS I use plus Money Monday blog related apps. So you do not need any expensive devices to be an investor. In fact anything which enables you to connect to the internet will work just fine for you.

Costs: Keep your current devices but if you want to spend then R6500 for a new laptop and phone is great.

5. Internet Connection

The software and devices won’t work without an internet connection so this is important. Whichever way you currently access the internet you can keep that way, just add more data to it. I use my mobile phone as a Tether or WIFI Modem and load about 20gigs per month in my Telkom sim. Keep in mind that I upload content onto a blog, use the data for my day to day personal life as well and business and almost always have Tradingview on. So for simple investment activities you will not need as much as 20gigs and can do fine with 8gigs. If you do not want to stress your mobile device you can purchase a 4g MI-FI modem as well. The key is to make sure you always have access to data. I also use coffee shops often to work from and so abuse their internet connections a lot.

For options you could look at Rain 4G Unlimited which costs R479 per month or other basic plans from Vodacom and MTN. In my experience Vodacom has the best internet connection so if you can afford their packages go for them.

6. Insurance

One key insurance product you will need is device insurance to cover your electronic devices. I recommend Pineapple. I use them for my devices and their service is great, simple and direct. Plus using one company for your device insurance makes it easier to keep track of expenses. For my mobile phone I pay R98 per month and R120 for my laptop. Trust me, you do not want to purchase these tools and risk not having a cost effective way to replace them. So get insured.

7. Notebook/Journal

Walk into pep and buy a simple hard cover manuscript for R9 and a pen for R5. This will serve as a journal you use to draft ideas. You can also use a digital notebook and journal on your laptop to take notes and keep track of your investing.

8. Books/Education (optional)

Books and education are an optional and variable cost but are a vital expense to success. It is important to learn how to properly invest. There are numerous courses online such as on Udemy and other information online. At Money Mondays we also offer in person courses in Johannesburg, Durban, Cape Town and Pietermaritzburg. We are going to be launching an online course in August and cannot wait to have it positively impact your life.

9. Food/Coffee shops

In some market sessions you may sit and enjoy a cup of coffee or snack. These expenses have to be considered as part of your businesses expenses. I use to drink a lot of monster energy drink and have peanuts nearby. These days I try prepare a peanut and banana smoothie sweetened with honey. It is healthier and looks better on Instagram. The cost of trips to the coffee shop can quickly add up to something serious within 12 months. I recommend you set a budget. Mine is R50 per visit and I visit once a week so R200 for the month. Sometimes it is less but it never goes over R200. Basically set yours according to the cost of your tea/coffee plus tip at your favorite coffee shop.

Cost summary

So those are the total things you can expect to pay for. Here is a summary:

Item:

Register Pty Ltd R175

Open Bank Acc R50 first deposit and R250 per month

Easy Equities Free but deposit investment capital

GT247 R79 per month plus deposit investment capital

Trading212 Free but deposit investment capital

Moneyweb Free or R69

Tradingview Free or $14.99

Laptop&Smartphone Already have or spend R6500

Internet Network dependent/ R300

Pineapple Insurance Depends on devices /R150 or more

Notebook/Journal Free digital app on laptop or R10 at Pep

Education RR1299 Money Mondays Course

Food/Coffee Shop R200 Budget

According to the table above your set-up costs if you open a Pty Ltd which includes registration fee, first bank deposit and time you might spend at an Internet Café like Postnet (R50) is likely to be a total of R275.

Your fixed monthly fees are from Banking, Moneyweb, Tradingview, Pineapple and Coffee Shop visits. They total R698 per month.

Potential Once-off fees are from laptop and mobile phone purchase, notebook and education which total R7160

In total to start investing in your first year you would potentially spend R15 811 which is a bit of money for a novice. In fact you might not even have that amount as your investment capital. So what can you do?

You may have already most of the above things or feel you don’t need them in that case we can bring down costs to the minimum monthly costs of: 1. Moneyweb R63 = R756 per year. 2. Tradingview: $14.95 = R285 = R3 409 per year 3. JSE Live data fee = R79 = R948 The above all equal to R5 113 per year.

This means that before you even make money for yourself, you have to earn R5 113 per year to cover basic costs. This means that you will have to stick with the free versions of software until you at least manage R100 000 with a yield of 16% per year which leaves you with 10.8% per year after expenses. It is important you calculate the costs this way so you can get a full picture that enables you to measure where you are as an investor. So if you want to enjoy the type of tools I have mentioned in this article it is best you have high investment capital so you do not have to pay for these things from your salary or money from elsewhere. Doing this helps you treat your investing like an independent business.

If you have less than R100 000 as investment capital then purchase the minimum set of things you need, use your own banking as a sole prop and only once you move to an investment balance of R100 000 do you then starting adding more tools to your set-up. I know it is tempting to get all these tools and use other incomes to pay for them but I promise you mathematically that does not make sense to the objective to increase your overall networth.

Trust me when I say it is not worth spending any money on fancy systems or technologies when you can direct that money to your investing. You can add each premium version of the tools bit by bit as your investment capital grows, that is what I did. Happy investing. Omega. Remember: Opinions expressed in this article do not and never will constitute financial advice. Every person’s financial situation is different; I recommend you speak to a financial adviser about yours.