Build­ing wealth, R500 at a time Money in the bank doesn’t nec­es­sar­ily mean you are wealthy. Ex­perts ad­vise on how to start build­ing wealth with even the small­est of con­tri­bu­tions.

Finweek English Edition - - ON THE MONEY -

all want to be wealthy. But with the ris­ing cost of liv­ing and salaries that barely seem to keep up with in­fla­tion, find­ing some cash to save monthly seems im­pos­si­ble for many.

This week we look at some ways in which peo­ple can start build­ing wealth with con­tri­bu­tions as small as R250 per month. Ex­perts ad­vise that each per­son would need to in­vest their money un­der the guid­ance of a cer­ti­fied fi­nan­cial plan­ner or a fi­nan­cial ad­viser.

Syd­ney Sekese, cer­ti­fied fi­nan­cial plan­ner (CFP) at Old Mu­tual, de­fines your wealth as your net worth, or all your as­sets mi­nus your li­a­bil­i­ties. A per­son needs to de­ter­mine how much net worth they want to build through the as­sets they hold (for ex­am­ple poli­cies, in­vest­ments, prop­erty, etc.) and their li­a­bil­i­ties, such as per­sonal loans, home and ve­hi­cle loans and credit cards.

“You get peo­ple with a large bank bal­ance, for in­stance R500 000, and they would think they are wealthy, but if you look at their li­a­bil­i­ties it might re­duce that R500 000,” says Sekese.

Be­fore in­vest­ing, you need to de­ter­mine what you are sav­ing for – be it a car, house or some­thing else in the short term, or some­thing for the long term.

“The first con­sid­er­a­tion is what­ever in­vest­ment ve­hi­cle you utilise needs to keep pace with in­fla­tion or at best out­per­form in­fla­tion,” Sekese says.

For short-term sav­ings to­wards a spe­cific goal, Sekese rec­om­mends a 32-day no­tice ac­count and/or money-mar­ket ac­counts.

Mark Lape­dus, head of prod­uct devel­op­ment at Lib­erty In­vest­ments, says in­debted peo­ple would be bet­ter placed to use any ex­tra money from their dis­pos­able in­come to set­tle debt they may have.

Another al­ter­na­tive is to in­vest in a tax-free sav­ings ac­count, which al­lows you to save up to R30 000 tax-free on an an­nual ba­sis.

Other op­tions in­clude unit trusts and money-mar­ket ac­counts. How­ever, the yield on money-mar­ket ac­counts is typ­i­cally much lower than what you would ex­pect from a unit trust.

“The ben­e­fit of a unit trust is they are ac­tively man­aged by a port­fo­lio man­ager, so you don’t need too much in­vest­ment knowl­edge,” says

For long-term sav­ings, re­tire­ment an­nu­ities are a good idea “be­cause the fact that you can’t with­draw the money en­sures dis­ci­pline”, Lape­dus says.

Beat­ing in­fla­tion

Sekese says to reach in­fla­tion-beat­ing re­turns, an in­vestor would need to take on risk. “If you in­vested R1 000 in the JSE 10 years ago, it would amount to R3 400 to­day.” But dur­ing that pe­riod there were mar­ket fluc­tu­a­tions where the mar­ket un­der­per­formed in the short term.

“Cash is king over the short-term, but over the longterm cash is trash be­cause in re­la­tion to in­fla­tion you will not be able to pur­chase the same amount of goods with the ini­tial in­vest­ment,” says Sekese. If one were to have in­vested R1 000 in a ba­sic sav­ings ac­count 10 years ago, it would be worth R1 500 to­day. “Your cap­i­tal would be safe, but you would have not done well,” he ex­plains.

There­fore a long-term per­spec­tive is im­por­tant, says Sekese. “Shares tend to be volatile and risky in the short term, but in the long term they are a good in­fla­tion-beater.”

Sav­ing R250 to R500 per month

If you can put away R250 a month, you can opt for a sav­ings ac­count, while some unit trusts also take a min­i­mum monthly sav­ing of R250 a month. “Unit trusts pro­vide in­vestors with an op­por­tu­nity to ac­cess the mar­ket at a com­pet­i­tive cost. How­ever, you should not be tempted to with­draw the funds pre­ma­turely; you can opt for an in­vest­ment term of five, 10 or 15 years,” says Sekese.

Unit trust in­vest­ments can be made on a lump-sum or monthly ba­sis.

“The ben­e­fit of a unit trust is they are ac­tively man­aged by a port­fo­lio man­ager, so you don’t need too much in­vest­ment knowl­edge.”

R500 to R1 000 per month

Sekese says that with be­tween R500 and R1 000 per month, you can in­vest in a num­ber of dif­fer­ent prod­ucts, in­clud­ing money-mar­ket ac­counts, ex­change-traded funds (ETFs), such as Sa­trix, and unit trusts.

“If you don’t want to rely on a pro­fes­sional fund man­ager through a unit trust or en­dow­ment or taxfree sav­ings ac­count, and you be­lieve you can select the stock your­self, then you can open a stock­bro­ker ac­count,” says Lape­dus, with R1 000 gen­er­ally the min­i­mum monthly in­vest­ment re­quired for an on­line share-trad­ing ac­count.

Marise Nel Ju­nior fi­nan­cial plan­ner at Bren­thurst Wealth Man­age­ment

Mark Lape­dus Head of prod­uct devel­op­ment at Lib­erty In­vest­ments

Syd­ney Sekese Cer­ti­fied fi­nan­cial plan­ner at Old Mu­tual

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