How to Invest in the Stock Market in South Africa

How to Invest in the Stock Market in South Africa
Photo by micheile henderson on Unsplash

The South African stock market is a great place to start investing. In this article, we will provide a comprehensive guide on how to find the best companies to buy shares in South Africa. By the end, you will understand the basics of the market, learn about different types of stocks, risk management strategies, and the importance of portfolio monitoring and continuous learning.

Understanding the South African Stock Market

Before investing in the South African stock market, it is important to understand its fundamentals.

What is the South African Stock Market?

The South African stock market is a part of the global financial system where public companies trade their shares. It is managed by the Johannesburg Stock Exchange (JSE) and is one of the largest markets in Africa.

Why Invest in South African Stocks?

Here are some of the key benefits of investing in South African equities:

  • Historically, South African equities have delivered solid long-term returns, and some companies offer attractive dividend yields;
  • Investing in South African stocks can be a way to diversify your portfolio and spread your risk, especially if you already invest in other markets;
  • South Africa has great growth potential and is one of the strongest economies on the African continent.

All in all, South Africa is a great country for investors.

Getting Started

Investing is intimidating at first, no matter what market you invest in. Below are the most important steps that every beginner needs to take.

Setting Financial Goals

Before investing, you should define your financial goals. Do you want to invest for the long term, save for retirement, or make short-term gains? You need to:

  • Think about what you want to achieve with your investments. Do you want to build your wealth, generate passive income, or both?
  • Determine how long you can invest your money before you need it. This will help you choose the right investment strategy.
  • Consider how much risk you are willing to take. Your risk tolerance will influence your investment choices.

Try sticking to your goal, as it is a critical part of success in investing.

Creating a Budget

It’s important to create a budget to ensure you have enough funds to invest without compromising your financial security. Make sure you set aside enough money for unexpected expenses to protect your investment capital.

Emergency Fund

Before you invest, establish an emergency fund to cover unexpected expenses and protect your investment capital:

  • An emergency fund should generally be sufficient to cover your living expenses for at least three to six months;
  • Your emergency fund should be easily accessible and liquid so you can access it quickly in an emergency.

Keep the fund separate from your investment accounts to ensure it is available in case of an emergency.

Types of South African Stocks

There are different types of stocks that are traded in the South African stock market. It is important to understand the differences between them before investing.

Common Stocks

Common shares represent shares in a company and holding them gives certain rights, such as voting at shareholder meetings and benefiting from dividends that the company pays to shareholders.

Preference Shares

Preference stock typically gives holders preference dividends, but has limited voting rights. It is a great choice for investors who don’t really care about voting rights and are more concentrated on creating passive income.

Researching South African Stocks

Before you buy stocks, extensive research is essential. Here are some important steps to research South African stocks.

Fundamental Analysis

Fundamental analysis involves examining the financial health of a company, including revenue, earnings, and debt:

  • Review the company’s quarterly and annual reports to gain insight into its financial performance;
  • Examine the company’s long-term earnings growth to assess its long-term profitability;
  • Examine the company’s debt compared to its equity to assess its risk.

This step will help you eliminate the obviously unsuited companies and create a list of more or less good investment opportunities.

Technical Analysis

Technical analysis involves examining price charts and trading volumes to predict price movements:

  • Identify patterns in stock prices to detect possible trend reversals or continuations;
  • Use technical indicators such as moving averages and Relative Strength Index (RSI) to generate buy or sell signals;
  • Consider trading volume to assess the strength of a price movement.

This is the stage that will reveal the effectiveness of the investment and you will be able to decide whether a specific stock is suitable for your goals.

Selecting a South African Broker

Choosing the right broker is critical to your success in the stock market.

Full-Service vs. Online Brokers

You can choose between full-service brokers that offer advisory services and online brokers that offer low-cost trading options. Below are the differences between the two.

Full-service brokers:

  • Offer comprehensive advisory services and research information;
  • Suitable for investors who want professional advice;
  • Usually higher fees and commissions.

Online brokers:

  • Offer low-cost trading and access to online tools;
  • Suitable for independent investors who want to trade on their own;
  • Lower fees, but limited access to professional advice.

For beginners, it is usually wise to start with an online broker and, over time, move to the full-service if they are serious about investing.

Opening a Brokerage Account

After choosing a broker, you need to open a brokerage account to buy and sell stocks. The process of opening an account depends on the broker you have picked. It is advisable to research different brokers and choose the one that offers the best conditions.

Placing Orders

There are several types of orders you can place when buying or selling shares.

Market Orders

Market orders are executed immediately at the current market price. This type has its advantages and disadvantages:

  • Fast execution. Market orders are executed immediately at the next available price;
  • No price limit. You have no control over the price you receive;
  • Suitable for liquid stocks. Market orders are suitable for stocks with high trading volume.

These orders are not suited for every situation but certainly have their uses.

Limit Orders

Limit orders allow you to set a specific price at which you want to buy or sell:

  • You set the price at which the order will be executed;
  • The order will only be executed if the market reaches the price you set;
  • You have more control over the price you receive, but no guarantee of execution.

Beginners should take full advantage of these order types.

Stop Orders

Stop orders help you limit losses by automatically selling your shares when the price reaches a certain point. Stop orders can help protect your capital when the market moves quickly, but there is a risk that the selling price will be lower than the stop price, especially in volatile markets.

Building a South African Stock Portfolio

Diversifying your portfolio is critical to minimizing your risk and achieving long-term returns.


By investing in different assets and industries, you can reduce your risk. Here are some ways to diversify:

  • Invest in different industries such as technology, healthcare, finance, and energy;
  • Consider adding stocks from different countries to spread your currency risk;
  • Consider other asset classes such as bonds, real estate, or commodities to further diversify your portfolio.

Diversification is very important and should not be overlooked.

Portfolio Management

Regularly reviewing and adjusting your portfolio is essential to achieve your goals. Regularly review your portfolio’s performance compare it to your original goals, and adjust them if necessary.

Risk Management

Managing risk is critical to long-term success. Without a proper system, you will lose money pretty quickly, so there are a few things you need to decide.

Assessing Risk Tolerance

Understand your willingness to take risks and adjust your investments accordingly. Beginner investors often have a longer investment horizon and can afford to take more risk but the lack of experience means that the risks are miscalculated more often than not. More experienced investors are often better able to handle higher risk.

Long-Term vs. Short-Term Investing

Decide whether you want to invest for the long term to benefit from long-term growth or for the short term to make quicker gains. Long-term investments are ideal for building long-term wealth and taking advantage of compound interest, while short-term investments can provide quicker gains, but often require active monitoring and trading.

Monitoring and Learning

Monitoring your investments and continuous learning are critical to your long-term success in the stock market.

Tracking South African Investments

Keep an eye on the market and adjust your portfolio to changes. Review your investments regularly to ensure they are meeting your goals, keep up to date with news and developments in the South African economy, and adjust your portfolio as necessary to ensure it remains diversified and in line with your current objectives.

Continuous Learning

Stay informed about current developments in the market and improve your investment strategies. Read books and articles on stock market investing to expand your knowledge, and use online resources, such as financial news websites and financial blogs, to stay up to date.

Final Thoughts

Investing in the South African stock market can be a rewarding way to grow your wealth. With the right understanding, research, and discipline, you can achieve your financial goals and make your investments successful.

Disclaimer: This article contains sponsored marketing content. It is intended for promotional purposes and should not be considered as an endorsement or recommendation by our website. Readers are encouraged to conduct their own research and exercise their own judgment before making any decisions based on the information provided in this article.

The views expressed in this article are those of the authors and do not necessarily reflect the views or policies of The World Financial Review.