Investing your money
Phakamani Mvelashe looks at ways your stokvel can get started in growing its funds
STOKVELS are uniquely South African and are very powerful as saving with a group encourages good saving behaviour. A stokvel is a communal savings fund where members use their combined savings to set aside money for a specific goal. But very few, if any, have investment accounts to grow their wealth. Many people are of the opinion that investments are for the rich or people with lots of money at their disposal. Well, that is very far from the truth. Experts say it's never too late for those who haven’t started to create their investment portfolios.
INVESTING IS EASIER THAN YOU THINK
“Getting started is a big step, and it’s always better to start small and then build-up your portfolio over time. While it’s not easy to tell when the market will turn around, a frequent mistake is made; waiting and postponing the decision to invest,” notes Carin Meyer, head of Share Investing at FNB.
Investing is not as complicated as it’s sometimes made out to be, anyone can open an investment account without having to pay for broker services. Exchange Traded Funds (ETFS) are the most practical option if you want exposure to JSE listed shares. An ETF is a bit like a share, but also a bit like a unit trust. It pools together many investors’ money to buy a number of assets, but unlike unit trusts, it is listed on the stock exchange and you can trade it like shares. Starting from R300 a month any prospective investor can open an account and invest in the top 100 JSE companies. The biggest advantage is that the investor does not have to select the shares, the shares are pre-selected.
YOU CAN START SMALL
Contrary to popular belief, investing is not about putting aside large amounts of money.
“Decide as a group how much
you can afford to put aside on a monthly basis and then have a scheduled transfer from your account, you won’t have to worry about transferring the money yourself,” says Carin. “Some stokvels may want to have readily available money so it would not be wise to invest it all in case of an emergency. Once the group has decided on how much of the money goes into their investment account, you can start increasing the amount without disrupting other financial obligations.” On average, FNB’S stokvel accounts are held for around five years, which shows that once starting a stokvel, people are committed to saving for a long period of time.
One of the main reasons people join stokvels is to save for a certain goal. How big or small that goal is will determine how long the group ought to keep their money in the investment account. Now, imagine staying invested long enough for you to start earning interest. Most stokvels accumulate their interest by lending money for a certain percentage interest. But if you were to invest your money and watch it grow with interest on interest, this is what compound interest does, you realise growth on original interest earned. This can only happen when you stay invested for the long-term.
Investing is not as complicated as it is sometimes made out to be
EARN A HIGH RETURN ON INVESTMENT
Deciding to invest opens up the possibility of earning growth on your money, this however, depends on the type of investment vehicle you choose. Speak to your financial services provider to find out which product is best suited to your needs and match this to your risk appetite. Asset classes such as shares offer better returns over the long term, but are prone to market volatility, while cash based investments are less volatile. “It’s important to realise that starting to invest does not have to cost large sums of money, all one needs is determination and the commitment to be in it for the long-term,” says Carin.
THE RISKS INVOLVED
Financial planner, Paul Roelofse, says if you expect a higher rate of return on your savings then you need to take on more risk. “Generally speaking, risk is the potential of your investment to fluctuate in value over a period of time. It is important to realise how risky your investments are relative to their returns. What tends to smooth out the swings in valuations is the time that you invest for. So if you save in risky investments then you need to commit for a longer period. On the other hand, saving on less risky investments will not produce the same rates of return,” he says.
WHERE TO INVEST
There are many institutions that offer investment products. But your bank is a convenient and easily accessible place to start investing for your stokvel. It’s important to note that even though you get interest, there are fees that go with an investment account just like any other account. There are also investment companies that specialise in long and short-term investments.