While you are sitting in lockdown, now may be the time to turn that WhatsApp group into a stokvel.
In her book Stokvels: How they can make your money work for you, author and financial educator Palesa Lengolo writes, “I have watched how some stokvels start contributing money from January of each year and, come December, they spend it all on groceries. And then they start all over again in January the following year. ”
Lengolo notes that many of these stokvels are not aiming to grow their money. Their main objective is to save (and usually, they’re getting a low interest rate) and then spend it all in one go. The result is that banks and major retailers are the only ones who benefit from stokvel members’ money.
Listen to Maya and Mapalo Makhu discussing this topic with Palesa Lengolo in the My Money, My Lifestyle podcast.
“Stokvels need to channel some of this money into investments , to earn better rates of return. For example, a money market fund can be used to invest for short-term objectives; for long-term objectives, equities, bonds, listed property and even offshore investments can be utilised. Stokvel members need to be aware that they could be investing for goals such as paying their children’s university fees, buying property, starting or buying a business and building generational wealth, to name just a few.”
Lengolo is a financial educator specialising in educating members of stokvels about investment opportunities.
She personally invests through various stokvels/investment clubs which provides her with a diversification of investments. Her investment stokvel PH Umcebo is made up of six friends and invests in individual shares (BEE share schemes are great opportunities for investment stokvels). Her Impact Investment Club invests in exchanged-traded funds and she also contributes to the People’s Stokvel that provides financing to small-scale entrepreneurs. She even has a travel stokvel with a group of girlfriends.
“The truth is, I am an investor at heart. The stokvel model allows me to do this without breaking the bank, because I contribute less than I would if I did this alone. This for me, is the power of a collective,” says Lengolo.
In her book Lengolo gives examples of the various investment products and opportunities available to stokvels as well as templates for a Stokvel Constitution, contribution schedule and even a stokvel budget template.
Rules that apply to a stokvel
Whether you are starting a stokvel for a holiday, to buy cattle, invest in shares or property, Lengolo says there are some rules that always apply.
You need to find potential members who you trust and who share a common goal. Having similar goals, income levels and risk appetites makes it easier to find consensus.
The average South African stokvel has about 27 members each contributing around R210 per month. But the size of a stokvel is largely driven by its intention. A grocery stokvel may have far more members than a group of friends forming an investment club.
Always have a separate bank account in the name of the stokvel that requires more than one signatory. All members should have access to the statements.
Stokvels must conduct themselves professionally like a business and must use real professionals/experts to assist them, for the protection of members and the legitimacy of the groups.
Make sure you have a constitution which deals with all aspects of the stokvel including what happens if a member is unable to contribute one month or wants to quit. What happens if someone needs to withdraw money unexpectedly? Do you include an element of an emergency fund into the total investment strategy?
Lengolo says when it comes to investing, start with each potential member completing a survey to understand their risk profile and investment time horizon.
- What does the investment need to do for the group? Is this for income or growth?
- How long do you want to invest for? Is this a two-year investment or are you looking for at least ten years?
- How will you tolerate a drop in the value of the investment?
Do your homework
If you do not want to start your own stokvel but would like to join an existing one, Lengolo says it is important to do your homework first.
“You should perform the necessary due diligence on a stokvel before joining. A new member must request a copy of the constitution and ask to see a history of the stokvel’s bank statements so they can see the pattern of when contributions are made and how frequently claims are paid out.
“Do not join a group that is unstable or lacks member commitment. This could derail the stokvel as its focus will be wasted on addressing misconduct or conflicts instead of making the stokvel a success.”
Lengolo recommends you ask the following questions:
- Is the stokvel registered with the National Stokvel Association of SA (NASASA)? While it is not a requirement for a stokvel, it is easier to check a stokvel’s validity and credentials if it is registered and can put a potential member’s mind at ease.
- Is your money secure? The money must be kept in a bank account with several members as signatories and the ability for all members to access a bank statement.
- Is the stokvel audited by an independent auditor and is the audit report available to all members?
- Are the returns realistic? Sadly, stokvels are used by criminal syndicates to scam people so you need to be careful of high promised returns. “Stokvels are a target for pyramid schemes. Their promoters are masters of group psychology. At recruiting meetings, they create an exciting, enthusiastic atmosphere where group pressure and promises of easy money play upon people’s greed and fear of missing a good deal,” warns Lengolo.
Whether you are looking to turn your existing stokvel into an investment club or starting a new one, Lengolo’s book is an absolute must read.
This article first appeared in City Press.