Young and the world at her feet

YOUTH’S ADVANTAGE: TIME IS A FRIEND, FEES THE ENEMY

Robin Gibson CFP, director of Harvard House Investment Management in Howick, advises a reader who is making her first investments.

Q: I am 21, living with my parents and saving half my salary. My first R20 000 saved I converted into euros and sent to a foreign account. What should I do with my next R20 000? A local, tax-free ETF, Krugerrands as the rand tanks? I want to learn how to invest directly, rather than using expensive intermediaries.

Answer: First, some observations: 1.

If you do not take charge of your own savings, no one else will. 2.

Time is the biggest factor in compounding interest. 3.

It is a big percentage of the final result. 4.

It needs to be created and then becomes easier.

Intentionality – Start early – Cost is important – Saving is a habit –

I am sure that you will feel very satisfied that you moved your first R20 000 offshore, given the weakness in the local currency. But it is still worth noting a point of caution: the rand’s major fall in recent months was very much about politics.

If you believe this can never be reversed, you need to reconsider the history of the rand between 2000 and 2010, and link that to commodity prices.

This is not to say that the rand is going to return to R6 to the Greenback. The level it goes to is less important than the level you get in at.

Diversify by all means, but understand the risk.

Gold is a difficult subject. South Africa is full of gold bulls and many who swear by it.

But the dollar gold price and the US dollar have a largely inverse relationship. In dollar terms, you would have lost money in gold over the last five years. This means that this becomes a rand bet.

The problem is that if commodities run, the dollar weakens, the rand strengthens (by implication) and the gold price rises. That means that you are in a net neutral position.

Gold produces no income (like dividends or interest), which means you are purely buying price action.

I certainly wouldn’t make gold too big a percentage of my portfolio.

Finally, I do not think any young person could fail by investing in a tax-free savings account. The benefits are substantial and if well planned it could become the jewel in a retirement portfolio.

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