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Over the past two decades, there has been substantial economic growth in Africa, particularly the general attitude toward financial culture. The continent was formerly addressed as one full of ignorant and uneducated people who hate to open books. Now she is respected for having innovative and financially woke members.
In fact, with the increase in engagements on the global market, Africa is very well an emerging market economy.
To commemorate Financial Literacy Month, we are introducing our beloved readers to the basics of stock market investing, starting with the topic – What Are ETFs?
Read the end to access a list of some of the best online stockbrokers in Africa.
What Are ETFs?
An Exchange-Traded Fund (ETF) is an investment fund traded on stock exchanges. They are low-risk investments in which you invest in a basket of securities tracking an index. The securities in an ETF may include bonds, stocks, and commodities (e.g., gold, silver, or oil) or combinations of these investments.
The stock market is a large fruit store. You walk in wishing to invest in fruits that would help you stay healthy yet still taste good, but you are torn about which products to taste. If you decide to try out all the fruits in the store, you may lose your money trying to find the best one – You are no fruit expert!
The shop owner then walks you to an aisle where you are greeted by small business owners selling varying quantities of different fruits in one basket for affordable prices. One basket is labeled Citrus fruits, one called Tropical fruits, another Berries, and then there is one basket containing the most sought-after or high-performing fruits.
Did you picture all that? It is a perfect illustration of what ETFs are. An ETF can be a basket of dividend stocks, technology stocks, healthcare stocks, blue-chip stocks, etc. ETFs are safe and low-risk because they are less expensive than buying individual securities. They allow you to buy into many securities with just a single trade at low expense ratios and commissions. And because of the basket of stocks you are allowed access to, your risk of losing money when the market is down will decrease. If one or even five securities in the ETFs are performing poorly, other securities that are doing well will compensate for the loss.
While ETFs are low-risk investments, they are not completely devoid of all risks. ETFs are subject to transaction costs which can be high depending on the fund. These costs may cut into your returns as an investor. Also, certain kinds of ETFs do not allow diversification because of the homogeneous nature of the stock industries.
Are Mutual Funds The Same As ETFs?
Mutual funds and ETFs are quite similar as they are both managed by financial experts. The only major difference is that mutual funds are traded once at the end of the trading day, while ETFs can be traded multiple times — like regular securities — during the day.
Mutual funds are controlled by market cap, while ETFs are influenced by the fluctuating of the managed individual stocks. Also, ETFs have lesser tax liabilities than mutual funds.
Best Online StockBrokers in Africa
BancABC is a stockbroker with its headquarters in Botswana. It is now referred to as Access Bank Botswana after being bought by the financial institution.
ABC Asset Management is a registered investment company located in Lusaka, Zambia. They’re one of Zambia’s top-ranking stock brokers.
ABSA Stockbrokers and Portfolio Management (Pty) Ltd is a licensed investment management company in Johannesburg, South Africa. They offer services such as financial planning and portfolio management.
ARM Securities Limited (Asset & Resource Management Holding Company) is an asset management firm in Lagos, Nigeria. ARM was recognized as Best Fund Manager, Nigeria, in 2013 by Capital Finance International.
Francis Drummond & Co Ltd is an investment company operating in Nairobi, Kenya. It was the first stockbroking firm in East Africa offering services on fixed income securities, equities/shares, money markets, and offshore investments.
Cirrus Securities (Pty) Ltd is an active stockbroker in Windhoek, Namibia. The company, founded in 1998, offers equity and fixed income trading services.
GFX Prime is a full-service investment bank in Accra, Ghana seeking to act as a bridge between local markets and the global financial market.