1. Where do I start?
First – know that money in an investment account is typically better earmarked for a goal that’s at least five years away because you’re probably subjecting your money to some level of risk.
Any shorter time frame than that and you should probably stick to lower risk interest bearing investments instead of stocks.
Now decide your investment goal….
Short/Medium term – Saving for a holiday, car or house deposit or,
Long term – Retirement…
Now think about the level of risk you are willing to take and the goal you have identified. E.g. short term – typically requires a higher appetite for risk, Long term investments usually include low risk stocks.
Then decide how hands on do you want to be?
If you don’t want to get stuck into research and analysis, then stocks may not be for you.
It’s probably best to stick to investing in ETFs or Unit Trust funds in that case.
2. What’s the difference between a stock and a share?
“Shares” are the ownership certificates of a specific company — so you might say you have 50 shares of Facebook. Owning stock, on the other hand, is a more general term that means you own a number of shares in a company or multiple companies.
For example, if you own shares of Facebook and Google, you own tech stock.
But really, this is just semantics. People often use the terms interchangeably.
Whether you call it a “share,” “equity,” or “stock,” it means the same thing: You have some ownership in a company’s assets and earnings.
3. What happens if this investment goes to zero?
There aren’t many companies left on the JSE that were there 50 years ago…
Of the original stocks in the Dow Jones index in 1896, only General Electric is still a going concern–something to think about if you’re a long-term “buy and hold” investor.
The other eleven firms in the original index have either gone bankrupt or have been swallowed up.
This means you need to realise it is a possibility that a company you invest in could lose you money – and perhaps scariest of all go completely bankrupt.
You need to ask yourself: “Will I be financially devastated if this investment goes to zero?” If the answer is yes, don’t make that investment.
When investing for shorter term gains, I always warn readers ‘Never invest with money you cannot afford to lose.”