Investing in shares is one of the best ways to create wealth over time, and the best time to start is now. Many investors find it overwhelming to know when to buy, when to hold and when to sell. They also mistakenly believe they should only buy when the market dips, hoping to capitalise on lower prices, which is a short-term investment mindset that can easily lead to missed opportunities.
When it comes to owning shares, adopting a long-term perspective allows you to benefit from the inflation-beating returns that this asset class provides, writes Wendy Myers, head of securities at PSG Wealth.
How to buy shares
To buy shares, investors will need to open an account with a registered stockbroker. Once this is done, the account is funded before a trade can be made, meaning the investor places either a “market” order or a “limit” order to buy the shares.
Shares are the best-performing asset class over the long term, offering inflation-beating returns. However, they come with risks, including market fluctuations in response to macro-economic events such as interest rate hikes and inflation, as well as company-specific downturns such as CEO resignations or, in the worst-case scenario, fraud allegations. Investors must conduct thorough research before buying shares.
A reputable stockbroking platform will provide reliable research that investors can reference before trading. This research guides the investor to identify the best buying points and highlights the potential upside.
Purchasing shares directly instead of through collective investments
Unit trusts and exchange-traded funds (ETFs) offer investors access to a diversified basket of shares at predefined percentage allocations. The benefits of buying shares directly are that the investor can choose (based on his risk profile) which shares he wishes to be invested in, in which sector and the percentage allocation in the context of the full portfolio. The investor can also decide when to purchase the share should he want to capitalise on short-term market fluctuations.
Holding period for shares and managing market fluctuations as an investor
If you invest in a solid company, a buy-and-hold strategy is recommended to benefit from long-term growth. Generally, financial experts advise holding shares for a minimum of five years to ride out market volatility and maximise returns. It’s also wise to review your portfolio annually to ensure no single share exceeds a 5% allocation.
This strategy helps maintain diversification and reduces exposure to excessive risk. If any stock grows disproportionately in value, it may be necessary to rebalance your portfolio by selling a portion.
In conclusion, investing in shares requires emotional resilience. It is quite normal for share prices to fluctuate by 1% to 2% every day. For new investors, the market’s occasional 3–5% swing can be unsettling. So, it’s important to exercise patience and focus on your investments’ potential for long-term growth. Speak to a certified financial adviser to assist you in paving the best route for your journey to financial wealth.