Your guide to get­ting started with in­vest­ing

Na­tional Sav­ings Month, with its fo­cus on mo­ti­vat­ing you to save to im­prove your fi­nan­cial sit­u­a­tion, ends this week­end, but if you com­mit now to in­vest­ing in your fu­ture, you will reap the ben­e­fits for many months and years to come. Laura du Preez re­port

Weekend Argus (Saturday Edition) - - LIFE -

If you are in­spired to save or in­vest, but paral­ysed be­cause you don’t know enough to get started, don’t feel alone. The re­cently re­leased Old Mu­tual Sav­ings & In­vest­ment Mon­i­tor found that less than 50 per­cent of those sur­veyed be­lieved they knew a lot about fi­nan­cial prod­ucts.

If a lack of knowl­edge is pre­vent­ing you from mak­ing this Sav­ings Month the one in which you start sav­ing for a bet­ter fu­ture, here are few tips on how to get go­ing. or a new car, or univer­sity fees, have in­vest­ment hori­zons of between a year and five years. You typ­i­cally want to achieve long-term goals over more than five years.

The longer your time hori­zon, the more your in­vest­ment will grow, the more your re­turns will com­pound, and the more in­vest­ment risk you can af­ford to take. the in­dex they track and are not se­lected by a fund man­ager. There are also pas­sively man­aged unit trust funds that track in­dices. Pas­sive funds have lower costs and de­liver re­turns in line with the in­dex they track.

Fund man­agers that se­lect shares and other se­cu­ri­ties charge higher fees, but aim to out-per­form what the mar­ket de­liv­ers by fol­low­ing an in­vest­ment style or phi­los­o­phy (see “Both ac­tive and pas­sive funds can de­liver, if you stick with them” on

As a South African in­vestor, you can use rand-de­nom­i­nated unit trusts and ETFs to ac­cess off­shore mar­kets with­out the has­sle of in­vest­ing in a for­eign cur­rency.

Unit trust funds clas­si­fied as multi-as­set funds are par­tic­u­larly suit­able for in­vestors who want to di­ver­sify across the main as­set classes of shares, bonds, listed prop­erty and cash.

For your in­vest­ment to grow mean­ing­fully, it must earn a re­turn that at least beats the in­fla­tion rate, cur­rently at 6.3 per­cent (year on year to the end of June).

The bank’s best five-year fixed de­posits are earn­ing about 8.4 per­cent a year, while money mar­ket funds (from which you can with­draw at any time) are earn­ing re­turns of about 7.5 per­cent a year (sub­ject to change in line with changes in in­ter­est rates).

A unit trust that aims for a lit­tle more than a cash re­turn (an in­come fund or an en­hanced in­come fund) could earn about one per­cent­age point more than 7.5 per­cent. You should not ex­pect a lo­cal bond fund to re­turn more than 1.5 per­cent­age points above the in­fla­tion rate.

Ac­cord­ing to Old Mu­tual In­vest­ment Group’s Long Term Per­spec­tives 2016 sur­vey, equities, as mea­sured by the FTSE/JSE All Share In­dex, have, on av­er­age, earned 7.5 per­cent­age points above in­fla­tion since 1 929 (see ta­ble). That equates to a re­turn of 13.8 per­cent a year at the cur­rent in­fla­tion rate.

A lo­cal multi-as­set fund de­liv­ers 5.8 per­cent­age points more than in­fla­tion. Global share mar­kets have a long-term track record of de­liv­er­ing 5.1 per­cent­age points more than in­fla­tion. Although the long-term av­er­age re­turns from equities will grow your money, you could lose money over the short term, such as a year. But you will re­alise this loss only if you cash in your in­vest­ment. The re­turns in sub­se­quent years are likely to make up for the losses in pre­vi­ous years.

How­ever, you have to be com­fort­able with the fact that longterm sta­tis­tics show that, af­ter in­fla­tion, South African equities have pro­duced neg­a­tive re­turns in one in ev­ery three years.

Old Mu­tual’s re­search shows that if you in­vest for five years in a South African eq­uity in­vest­ment, your av­er­age an­nual re­turn af­ter in­fla­tion could be any­thing from 31 per­cent to mi­nus 14 per­cent. Over a 20-yearpe­riod, how­ever, the range of an­nual av­er­age re­turns is much nar­rower, between two and 13 per­cent.

If you can’t stom­ach the risk you need to take to meet your in­vest­ment goal, or your time hori­zon is too short to al­low you to risk in­cur­ring a loss and wait­ing for the mar­ket to re­cover, you need to in­vest more or push out your time hori­zon. con­tri­bu­tions are tax-de­ductible up to cer­tain lim­its. Re­mem­ber that you can’t ac­cess money saved in a re­tire­ment fund for other needs in the short term, un­less you re­sign from your em­ployer, or, in the case of an RA, af­ter the age of 55.

If you want to save tax on longterm in­vest­ments, but may need to ac­cess your sav­ings at short no­tice, or you have ex­hausted your re­tire­ment fund tax de­duc­tions, con­sider a tax-free sav­ings ac­count. You can con­trib­ute up to R30 000 a year or R500 000 over your life-time to one of th­ese ac­counts. You will not pay any tax on the in­ter­est in­come, the div­i­dends or the cap­i­tal gains, re­gard­less of how much growth you earn. Many of th­ese prod­ucts are of­fered on in­vest­ment plat­forms, known as linked-in­vest­ment ser­vices providers, that give you ac­cess, at a cost, to a range of unit trust funds, ETFs and shares through a sin­gle fi­nan­cial com­pany. En­sure that a prod­uct provider is reg­is­tered in terms of the rel­e­vant leg­is­la­tion. Unit trusts and many ETFs are col­lec­tive in­vest­ments that should be reg­is­tered un­der the Col­lec­tive In­vest­ment Schemes Con­trol Act, and the unit trust com­pany should be reg­is­tered as a fi­nan­cial ser­vices provider with the Fi­nan­cial Ser­vices Board (FSB).

An ETF that is not a col­lec­tive in­vest­ment scheme should be listed on the JSE. A stock­bro­ker and an on­line stock­bro­ker should be reg­is­tered with the JSE.

A fi­nan­cial ad­viser should be reg­is­tered as a fi­nan­cial ser­vices provider with the FSB.

Be­cause cur­rent per­for­mance may be the re­sult of a stroke of good luck, you may want to look at a mea­sure of con­sis­tency of per­for­mance – that is, per­for­mance that is re­peated con­sis­tently over time – such as the PlexCrown rat­ings, which are in­cluded in our weekly per­for­mance ta­ble.

Per­sonal Fi­nance also pub­lishes the PlexCrown sur­vey of unit trust man­agers. This sur­vey iden­ti­fies which man­agers have top­per­form­ing funds across their range of funds on a con­sis­tent ba­sis.

It is more dif­fi­cult to check the per­for­mance of a stock­bro­ker­rec­om­mended port­fo­lio or a port­fo­lio of unit trusts rec­om­mended by a fi­nan­cial ad­viser, but stock­bro­kers and ad­vis­ers should be able to show you the past re­turns of the port­fo­lios they rec­om­mend. If do­ing all of the above your­self seems too much like hard work, there are two eas­ier op­tions. One is to turn to an in­de­pen­dent, qual­i­fied fi­nan­cial ad­viser for help. You will typ­i­cally pay an an­nual fee of up to one per­cent of the value of your in­vest­ment.

Th­ese web­sites can help you to find a good ad­viser:, www.fin­d­anad­vi­ and fi­nan­cialplan­ner­

The other op­tion is to use a roboad­viser that guides you through iden­ti­fy­ing your goals, in­vest­ment hori­zon and choosing a suit­able range of unit trusts.

The robo-ad­vis­ers of­fered by listed fi­nan­cial ser­vices com­pany Syg­nia and Galileo’s SmartRand di­rect you to pas­sively man­aged unit trust funds.

Fi­nan­cial ad­vice firms, such as Beanstalk, Bizank and In­ve­ston­line, that of­fer robo-ad­vis­ers di­rect you to a mix of ac­tively man­aged funds.


Just do it. You are likely to lose more money by not be­ing in­vested at all than not be­ing in­vested in the perfect in­vest­ment. As long as you avoid the scams, it is more im­por­tant that you choose an in­vest­ment that earns less-than-spec­tac­u­lar re­turns than it is that you do not earn any growth at all.

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