Strategic Six Savings Club is a group of five 34-year-olds who set up a stokvel nine years ago with the aim of building long-term wealth through saving and investing collectively. With contributions starting at just R250 per month, the group has saved over R200 000 but have missed out on real growth opportunities by remaining in cash-like investments.

Ready to take their investment club to the next level, the members recently began the process of investigating what investment options are the best in terms of meeting their objectives.

By spending several months meeting with product houses and financial advisers the club learnt a great deal about investing and what offerings are available.

“The whole journey was very interesting, productive and the most important fact is that it was an eye-opener to all club members,” says Snyman Mojapelo, president of the Strategic Six Savings Club, who met with Discovery Invest, Investment Solutions and financial advisory firm Gradidge Maharu investments.

Discovery Invest

The group first approached Discovery Invest, which had advertised an investment product for savings clubs. When the group met with a Discovery adviser, they were recommended to invest in a five-year guaranteed product. This however did not meet the needs of the Club, which has a long-term investment horizon and given the relatively young ages of the members, they do not require expensive guaranteed options.

“The financial adviser missed the whole purpose of our meeting. His main focus was more the individual products such as medical aid, life cover and funeral policies,” says Mojapelo who adds, however, that for the individual members of Strategic Six Savings Club, it was worth meeting with Discovery because individually they do not have financial plans.

Investment Solutions

Investment Solutions is the first investment company to create a structure that allows stokvels to invest in unit trusts. Although stokvels represent a potentially very lucrative market for investment houses (stokvels are estimated to collect between R45bn to R50bn a year), from an investment point of view stokvels create a legal challenge as they are not a legal entity such as a trust or partnership. There is also the issue of dealing with members leaving or joining the group. Most investment houses try and force an individual-based solution onto a stokvel structure, which doesn’t really meet the stokvel or investment club’s needs.

What was needed was an investment product that allows for the flexibility and complexity of a group investment which is essentially the premise behind the new offering from Investment Solutions, which allows stokvels to invest in a wide range of unit trusts.

The stokvels have their own application forms and their own way of being Fica-registered. “We deal only with the stokvel itself, not the members. We don’t want to interfere with the essence of what a stokvel is,” says Alexander Forsyth-Thompson, head of Stokvel Investments at Investment Solutions.

“If a stokvel has money that it will not need within the first year, it may not be in its best interest to leave it in a bank account, being weakened by inflation,” Forsyth-Thompson explains. “There may be better ways to utilise this money, which is why we are marketing three unit trust portfolios: a conservative income-type portfolio with bonds and cash; a moderate portfolio with a three-year investment horizon; and a moderately aggressive portfolio with a three- to five-year horizon.”

Although Investment Solutions has focused on three unit trusts in its Investment Solutions Stokvel Unit Trust offering, representing three different risk profiles, stokvels can invest in a wider range of unit trusts including offshore portfolios for example.

After doing a financial needs analysis, the Performer Managed portfolio was recommended to the club. It is a fully discretionary balanced fund which is able to invest up to 25% of its assets offshore.

The Investment Solutions product offering is appealing to the Strategic Six Savings Club. “We had a very interesting discussion with Alexander. They where not trying to sell us a policy. We had an open discussion around investing our savings into a unit trust and they explained concepts such as our risk profile, expected returns as well as our investment horizon and the accessibility to the fund,” says Mojapelo.

Gradidge Mahura Investments

The Club met with financial adviser Craig Gradidge who offers financial planning on an hourly fee basis rather than on product commission. Gradidge highlighted other investment opportunities such as BEE investment schemes and that the club was missing out on some good investment opportunities available to them as black investors.

“Personally I feel that we should appoint Craig as our investment adviser because he has a lot of experience in the investment and financial services industry and he is independent. He is not trying to sell us a product to make a good commission. They also have quite a few stokvels as clients,” says Mojapelo. As an independent adviser Gradidge would be able to assist them in developing an overall investment strategy which could include various investments including BEE shares and unit trusts such as those offered by Investment Solutions.

Gradidge was clear, however, that on a personal basis the members needed to have their own financial advisers. “I recommended they consult with my colleague for their personal financial planning. My experience with other clients has taught me that the lines between personal and group investments get blurred quite easily. It is important that they separate personal and group in their own minds, and separate advisers is one way of practical way of doing so, ” says Gradidge.

About the Strategic Six Savings Club

The club was established in September 2006. As the name suggests there were initially six members but one member left as his life vision did not match that of the club. This highlights the importance of ensuring that the members of your investment club share the same vision.

In the first year each member set up a stop order on the first of each month to pay R250 per month into the Club’s savings account. That amount has increased 10% each year and currently the members contribute R610 per month.

The club is highly disciplined and the members meet four times each year. The club has a founding document (constitution) authorising a member to act on behalf of the club.

The club is also a member of the National Stokvel Association of South Africa (NASASA) which provided the club with the necessary tools and guidelines on how to start a stokvel, including a constitution template. The membership also means that they are recognised as a legal institution when it comes to opening investment and savings accounts.

Currently they have two accounts with Nedbank – the first is a savings account which they use to collect the monthly contributions. On the 7^th of each month they pay their collective contributions across to the Ned-term Account, an investment account which earns a higher interest rate. They also have an investment in Sasol Inzalo shares.

Tax implications for stokvels or investment clubs

Stokvels are a ‘grey area’ in terms of tax legislation, but by being a member of NASASA, the club is exempt from the Banks Act and is able to collect money on behalf of members. Stokvel members are taxed in their own capacity rather than as a group.

• Each individual would be expected to declare any capital gains tax only when they withdraw from the investment – this tax is based on the growth only, and only if the growth (not contributions or investment amounts) per person exceeds R30 000. Capital gains tax can be a maximum 13.65% on the growth above the threshold amount, depending on the individual’s tax rate. The capital gain is paid by the members in their personal capacity and each would have the R30 000 capital gains exemption.
• Any dividends you are paid from holding shares are taxed at 15% as a withholding tax. This means it is withheld by the management company, so any dividends received have already been taxed.
• Interest tax applies on any interest received, as it would in any bank account or money market investment. However, you are only taxed on interest if it exceeds R23 800 per annum, per person. This means it would have to be a fairly large investment to attract tax on interest.

If you are concerned about the tax implications of your investment club it is best to consult with a financial adviser or tax practitioner.