Invest your Cappuccinos
Skimp on coffee and fly to Mauritius
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.