In­vest your Cap­puc­ci­nos

Skimp on cof­fee and fly to Mau­ri­tius

Finweek English Edition - - Creating wealth - GARTH THE­UNIS­SEN & BERNARDT VAN DER LINDE

IF, LIKE THE AV­ER­AGE hack, you en­joy a daily cup of Joe, you’ll be in­ter­ested to know that your caf­feine habit could be set­ting you back al­most R315 a month (R314,96 to be pre­cise, for a 31-day month).

That’s as­sum­ing a price of R10,16 per cof­fee, based on a snap sur­vey of five Sand­ton cof­fee shops within walk­ing dis­tance of Fin­week’s of­fices.

Al­though R315 a month may seem like a small price to pay for one of life’s great plea­sures, con­sider for a mo­ment the op­tion of in­vest­ing your monthly cof­fee bud­get in the Sa­trix 40, a JSE top-40 linked in­vest­ment fund.

As­sum­ing you rounded off the fig­ure to R315 and be­gan in­vest­ing at the end of Jan­uary last year, you would have earned a to­tal re­turn of R461,26 by 22 Jan­uary 2007 had you for­feited cof­fee in favour of in­vest­ing in the Sa­trix 40.

Af­ter de­duc­tions for tax (we as­sume an ef­fec­tive rate of 35%, which equates to R161,44) you’re left with R299,82.

(Of course if you keep the shares for at least five years, they’ll be free of in­come tax, but will be sub­ject to cap­i­tal gains tax.)

Fac­tor­ing in div­i­dend yields of 2%, you get an ad­di­tional R86,51, leav­ing you with a to­tal net re­turn of R386,33.

To cut a long story short, that means if you in­vested R315 in the Sa­trix 40 be­tween 1 Jan­uary 2006 and 22 Jan­uary 2007 in­stead of buy­ing cof­fee, you would have earned an ad­di­tional R386,33, leav­ing you with a to­tal of R4 481,33.

Of course, if cap­puc­cino is your daily fix, then you could po­ten­tially have earned an ad­di­tional R429,25 as­sum­ing an av­er­age cap­puc­cino price of R11,56. The to­tal amount saved would have been R4 979,25 – roughly the price of the air­fare to Mau­ri­tius.

In­ter­est­ingly, thanks to the bullish mar­ket con­di­tions last year, the sav­ings from in­vest­ing ei­ther your cof­fee or cap­puc­cino bud­get in the Sa­trix 40 would have beaten in­vest­ing in your home loan.

Cof­fee drinkers would have saved R277,69 in in­ter­est pay­ment last year had they in­vested in their home loans while cap­puc­cino ad­dicts would have saved R308,54. The Sa­trix 40, on the other hand, would have re­warded cof­fee drinkers with R386,33 and cap­puc­cino afi­ciona­dos with re­turns of R429,25.

Of course you have to re­mem­ber that if re­turns on the JSE were to fall this year, as they are ex­pected to, then in­vest­ing in your home loan would once again be­come a bet­ter op­tion.

Back-of-en­ve­lope cal­cu­la­tions sug­gest that the JSE would have to of­fer re­turns of at least 20% to make it more at­trac­tive than in­vest­ing in your home loan. With the con­sen­sus for an­nual re­turns on the JSE this year be­tween 10% and 15%, you might want to in­crease the in­stal­ments on your mort­gage pay­ments this year be­fore look­ing at eq­ui­ties.

None­the­less, ei­ther op­tion beats splurg­ing on cof­fee…fi­nan­cially speak­ing, that is.

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