In­vest­ing your money

Phaka­mani Mve­lashe looks at ways your stokvel can get started in grow­ing its funds

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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.

COM­POUND IN­TER­EST

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.

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