Easy ways to get going on a savings plan
Robo-advisers can guide DIY investors through online apps
● Did you set yourself a savings goal for the new year but don’t know where to begin?
Finding a good investment to meet a simple DIY savings goal can take a lot of research, but a quick solution is to use a roboadviser or hints from investment platforms.
Ideally, investments should be made after considering the investment return you need, the investment risk you can afford to take, and the risk you can tolerate. A full analysis of your investment needs will also consider your current investments and how they match your needs and the risks they pose.
But if you are a DIY investor willing to invest for at least three years and you just want to get going on meeting some simple goal for a single need, you can use a robo-adviser, choose an index-tracking product to get exposure to local or global markets, or take some hints from investment platforms’ fund buy lists to help you choose a good actively managed fund.
Blend of funds
Robo-advisers are websites or apps that ask questions to identify the investment risks you can take to meet your investment goals. This information is used to determine the appropriate allocation you should have in equities, bonds, listed property and cash.
The robo-adviser suggests a fund or blend of funds to match that allocation and will monitor your portfolio and determine when it needs rebalancing to ensure you maintain the appropriate asset allocation after market movements change the asset class balance.
Robo-advisers typically recommend investments in cheaper index-tracking investments. Asset manager Sygnia’s robo-adviser will recommend one of 10 portfolios made up of investments that track a mix of six indices representing different asset classes.
Monthly investments start at R500 and the fees are 0.5%, including advice, asset management and investment platform fees.
SmartRand, the robo-adviser of financial advisory firm Galileo Capital, has five model portfolios or unit trust funds made up of a mix of passively and actively managed assets. Total fees including advice, asset management and investment platform fees range from 0.95% to 1.5% a year. The minimum monthly investment is R500.
OUTvest, the robo-adviser in the OUTsurance stable, has four model unit trust portfolios passively managed by investment manager CoreShares and a money market fund. Total fees including advice, asset management and investment platform fees range from 1.5% a year and reduce to as low as 0.7% for amounts of more than R500 000. You can save as little as R100 a month.
If you know what kind of unit trust fund will suit your goals and risk capacity, you could choose a fund using the fund buy lists on major investment platforms as a guide. If you have a long investment horizon, you can afford to take more risk and invest in a pure equity fund that invests across the market — a South African general equity fund or, if you want offshore exposure, a global general equity fund (in which you can invest in rands, avoiding the hassle of converting your money into a foreign currency).
If you prefer an investment with less volatility, consider a multiasset fund that invests in equities, bonds, cash and listed property. The diversification across asset classes offers a smoother investment ride.
Most investment platforms have fund buy lists reflecting funds on which the provider’s investment committee or a contracted research entity has done due diligence and is willing to recommend as a good investment.
These buying lists help you narrow down the universe of funds from which to choose.
One of the most popular investment platforms is Allan Gray’s. It lists some 50 funds that are rated by independent rating agency Fundhouse.
Another large platform, offered by Glacier in the Sanlam group, conducts its own research into its funds. On the Investec IMS platform, funds are selected by outside research house 2IP for the iSelect fund range.
If you have the investment horizon and appetite to invest in equities only, an uncomplicated way to do so is by investing in an exchange traded fund or index-tracking unit trust fund. No South African ETFs track the JSE’s All Share index, but there are many that track the Top 40 or the Shareholder Weighted All Share index, or Swix Top 40.
Nerina Visser, a director at etfSA, suggests that investors wanting exposure to the local share market consider an ETF such as the CoreShares S&P Top 50 as it gives exposure to the 50 largest shares, offering more diversification than a Top 40 ETF, and its exposure to any share is capped at 10%.
The CoreShares S&P Top 50 only has a two-year track record — 11.42% a year — but the index it tracks has returned on average 8.85% a year over the past 10 years and 12.89% over seven years. Bear in mind that index trackers deliver similar returns less their fees.
South African ETFs also offer exposure to offshore markets without you needing to switch your rands into a foreign currency.
Visser says ETFs that track broad global indices — such as the MSCI World offered by Satrix and Sygnia, or the S&P 500 offered by CoreShares and Satrix — give you exposure to developed markets. You can then add an ETF giving exposure to emerging markets.
The Sygnia/Itrix MSCI World ETF has the longest track record — seven years — and is showing a return of 18.98% a year over that period, according to etfSA’s survey.
Individual investors can also buy passively managed multiasset funds.
For more on choosing an appropriate investment, read our Money Guide to Investing at www.businesslive.co.za/bt/money