Starting a savings plan

Savings“You always say that every cent is important so I want to start a savings plan. My pocket money is R400 a month and I want to save R200 to invest for the future.  I want to know how I should invest my money,” writes Amogelang who is 22 years old and currently studying.

Keabetswe is a second-year university student who also wants to start investing. “I would like to know where I should invest my money, the bank or buy shares in a company? Which one will give me a higher return after 5 to 10 years?”

Maya replies: Some people believe that you need to have lots of money to start investing, but just investing R200 a month can add up to a significant lump sum. Around nine years ago I started saving R200 a month for my son in Satrix 40 which simply tracks the performance of the 40 largest South African companies. Today that investment is worth R55 000!

Over time shares in listed companies on the Johannesburg Stock Exchange outperform cash. Certainly if I had invested my son’s money in a bank account it would nowhere near the same value that it is today. However the value of the investment has had to ride out big moves in the stock market as we went through the 2008-2009 financial crisis. Despite one of the biggest market collapses in history the returns have still been significant. You need to understand the nature of the market and not to become concerned with short-term falls in value.

As a young person wanting to invest each month you should invest in growth assets that can outperform cash. As mentioned in the short-term (up to 2–3 years) the stock market can be volatile and the value of your money can fall if there is a market crash. However if you are investing each month this can actually be to your benefit as you are able to buy more shares with the same amount of money.

A good starting point is to invest in a basket of quality listed companies either through a unit trust or through an exchange traded fund (ETF) offered by companies such as Satrix, ETFSA and Absa. ETFs are low-cost investments that track the performance of the stock market.

You will need to check the minimum investment amounts as they usually start at R300 per month however there are several unit trust funds that offer investment amounts for R200 per month which include Sanlam, Absa and Stanlib. However check the fees first as some of them charge an upfront fee of 5% even if you do not use a financial adviser. Fees have a bigger effect on your total return than the fund manager’s performance so they do matter.

                  

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