SAVING & INVESTING

Is saving or investing a hassle for you? Experts share why it’s never too late to start and how to get going

It is hard to save, isn’t it? South Africans are drowning in debt, with no apparent way out. And the statistics back up the gloomy state of affairs. According to the South African Reserve Bank, the household savings rate, which was around 6% of the GDP per year in the 1970s, dropped to 1.6% in the 1990s and is now shockingly low at just above 0%. Alexander Forbes financial planner, Jaco Prinsloo, says the savings rate is 0% because, for every R1 someone saves, another person goes R1 into debt, cancelling each other out.

Karabo Ramookho, strategic marketing manager at Old Mutual, states that according to Old Mutual’s 2019 Saving and Investment Monitor, South Africans are feeling the economic pinch more than ever. The 2019 statistics saw a decrease in savings for emergencies, with 38% of urban, working households only having enough money to last them a month or less should their primary source of income disappear.

Busi Selesho, an internationally accredited money coach and author, notes how it can be useless to save while in debt because debt interest takes more money from you. So we need to get out of debt first to be able to save. When it comes to investing, the fact that 2/3 South Africans don’t have a retirement plan and only six out of 100 people can retire comfortably tells us we’re not investing enough.

But despite our poor savings culture, it’s never too late to start, because we need to plan for our children’s futures or our own retirement. The best time is now.

THE DIFFERENCE BETWEEN SAVING AND INVESTING

Before we save or invest our hard-earned cash, it’s important to understand what these terms mean. Prinsloo defines savings as the money you put away for a shortterm goal like a deposit on a house or medical emergency, whereas investing is the process of investing money in assets that can provide you with an income in the future. Saving is a sprint and investing is a marathon.

Ramookho says that when investing, you have to take on some degree of risk. The greater the risk, the greater the potential returns. The key is to figure

out the level of risk that is appropriate for you and your circumstances.

WHEN TO START?

Selesho advises that we start saving and investing from as early as our first income. There’s no age or income restriction. Invest any money you get, especially when you’re still young. “Compound interest and time are the two most valuable assets any investor has when saving. The more time you have, the easier it is to reach your goals,” Prinsloo explains. Ramookho makes this example: if you invest R180 a month for 40 years at 10% interest, it would grow to almost R1 million. If the period is only 10 years, you would have to put away over R5 000 a month for the same R1 million!

Start saving by setting up an emergency fund with enough cash to fund shortterm goals like weddings or medical emergencies. Once you have enough emergency savings in place, you can start investing for long-term goals like your retirement or kids’ education.

Selesho warns against just swiping your credit card or getting a loan every time you want to buy something. She says it’s better to save and buy cash. “I went into a R40 million debt and came out bankrupt. I couldn’t have any credit for 16 years and that’s when I learnt to buy a car and property cash. Today I live on a cash basis, and you can teach yourself to do the same,” Selesho says.

BEFORE YOU INVEST

Have a long-term goal as to why you want to invest. That goal will make investing easy. Selesho recommends investing any surplus money. “Every time you get an increase, invest that money,” she explains.

Prinsloo says when investing, you need to consider factors like: Your personal circumstances (age, income and marital status) Your investment goals (wealth creation or income generation)

Your investor risk profile (moderate, conservative or aggressive) Your investment term (less than one year, less than three years or more than five years).

Your personal circumstances will determine what type of investment portfolio is right for you. Usually, the shorter your investment time period and conservative your risk profile, the more conservative your investment portfolio should be – that means more cash and bonds. The longer your investment time period and aggressive your risk profile, the more aggressive your investment portfolio – which means you can invest more in shares and property. But, Prinsloo also recommends a well-diversified portfolio, as it gives you exposure to the best performing asset class and not too much exposure to the worst-performing one.

However, always keep in mind that all investments carry at least two investment costs: i) An admin fee you pay to the investment administrator for the daily management of your investment and this includes – providing you with statements, reinvesting your profits and reporting to SARS. ii) A portfolio management fee you pay to the asset manager for buying and selling assets like shares and bonds.

Everyone should know their fees as it will affect the return on investments. “If you’re paying annual fees of below 1%, you’re good to go, but aim to pay the lowest fee possible for your investment strategy,” Prinsloo adds.

THE PROS AND CONS

Ramookho notes how, from a psychological point of view, saving money can give you peace of mind and a sense of control. “Saving allows you to settle expenses without going into debt or relying on others for help,” Prinsloo says. Selesho adds that investing also secures your future, especially if you invest in yourself.

With that being said, there are some drawbacks when it comes to saving and investing, but these should not put you off from doing both. Some of those are: the interest you earn on the money you save can attract income tax; and your savings could lose their buying power if they’re not growing at a rate that’s equal to or greater than inflation. Ramookho says if you’re investing in offshore assets, your investment will also be exposed to currency fluctuations and foreign tax.

Saving is not easy. Prinsloo says, “It will require discipline and sacrifice, which could mean no Netflix or overseas holiday.” And Selesho believes that while it might feel like you’re throwing money into an empty hole, your future self will certainly thank you for the choices you make today.