An investor who puts away R1 a month is likely to face one-off brokerage fees of between R70 to R when investing into a specific JSE company, according to Simon Brown, founder and director of JustOneLap.

Thus, in order to cover costs and show a reasonable profit, low-cash investors would have to seek high-risk stock in order to generate a substantial return.

This is not the route to take according to the experts spoken to.

Red Hot Penny Shares

Small-cap stocks of smaller companies attract significantly more risk and should be viewed only as a sweetener, when well researched, as part of a portfolio that is focused on larger companies said Mclachlan.

To boot, conventional investment wisdom has it that you should, wherever possible, widely diversify your investment portfolio so as to minimise the risk of individual stocks pulling down hard on your total portfolio returns when they underperform.

Portfolio diversity reduces portfolio volatility making returns more consistent, minimising risk. However, to achieve portfolio diversity through a direct investment approach means buying lots of individual stocks, buying lots of stocks means paying lots of brokerage fees, further undermining the potential profitability of your directly invested portfolio.

With direct investment into equity out the window on low investment amounts, the casual investor has two main alternatives when looking to get into equity: The debate around the benefits of a unit trust versus ETFs is one that has been raging with greater intensity as the ETF market becomes more established and diversified in South Africa. Both offer the layman investor the opportunity to gain exposure to a range of assets at far less cost than would be required through the direct investment approach.

The passive investment approach also requires far less knowledge and effort on behalf of the investor.

However, ETFs tend to be much cheaper than unit trusts and the reality is that they perform comparably, often better, than most unit trust funds especially in bullish, or well performing, market environments. According to analysts spoken to, for the low-cash investor seeking healthy returns, ETFs are the way to go.

Plus | Tradez en ligne le forex, des matières premières, des CFD, des valeurs/actions/capitaux propres/titres, des indices.

Claude Hanan, a wealth manager at Kanan Wealth, however, argues that high-quality unit trusts may still be a good option, provided the investor seeks a fund managed by a highly rated fund manager.

ETFs typically track various market indices such as the JSE top 40 and thus have exposure to a range of underlying assets, including equity, bonds and others, offering immediate diversity.

According to Moneyweb calculations based on Equinox. By comparison, the TER for ETFs sits at around 0. In addition, the published buy fee the amount of your invested capitol that will go towards gaining access to a unit trust fund for general unit trust funds, as captured by Equinox sits at a pretty intimidating 4.

And unit trusts often have other associated costs such as built-in performance bonuses for the fund manager. The SatrixIndi, which invests in industrial stock, is the best performing ETF over the last five-ten years, according Mike Brown. More aggressive investors may want to park money into the Rafi ETFs such as the Satrix Rafi or Absa eRafi which are mandated to outperform the market, according to Brown.

The Rafis are ETFs made up of companies that are based on valuation rather than the size of the company.

To get into ETFs Brown suggests platforms, such as ETFSA for convenience in moving between ETFs as well as access to some of the more exotic ETFs but penny-wise investors may save by going directly to the providers of some of the more common ETFs.

Although this involves more paper work it will pay-off over time. Graph by Kanan Asset Managment. Month-End performance data values for periods greater than one year are annualised as at 22 Jun All performances shown in the table are percentages calculated using NAV to NAV prices net of fees, including dividends reinvested on payment date. You might have left one of the fields blank, or be posting too quickly.

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Investing in penny stocks: How to buy penny stocks on the JSE

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