Savings and Investment Tips

Here are some savings and investment tips from Liberty Life:

Wealth Starts With Saving

There is no doubt that South Africa is facing a savings crisis. Our savings statistics show that kon average households are actually “dis-savers” – drawing money out of the economy rather than investing in it.

On an individual level this is worrying but on a national level it can lead to a crisis. Without savings to invest in developing our economy, our country is forced to borrow abroad and rely on foreign savers – which becomes even more precarious considering we remain on watch for a downgrade in December.

Starting a household savings culture doesn’t require a great deal of money – it requires saving, rather than spending, a couple of hundred rand a month.

How R500 can become R100 000

July is savings month, so use this opportunity to start a monthly debit order to build long-term wealth. You’ll be surprised at how this builds into a considerable investment over time.

A monthly debit order is a powerful investment tool. It creates a savings discipline, just a small amount each month can grow your wealth over time and it protects you from your emotions.

Your savings grow over time: A relatively small debit order can over time become a significant amount of money. For example, if over the last ten years you had invested just R500 per month in the Stanlib Alsi 40 fund which simply tracks the average return of the top largest South African companies, today the investment would be worth around R115 000 – that is R56 000 of growth alone.

It creates savings discipline: If you set a debit order to go off your bank account before you can spend the money, you learn to live off the money that is left in your account.
It reduces emotional investing: When investing a lump sum, the timing of the market can have a significant impact on your returns and our emotions increase the chance that we will invest at the wrong time – selling when there is fear and investing when there is euphoria.

It reduces the overall price of your units: You buy more units when prices are low, and fewer units when prices are high, which reduces the overall price you paid for the total number of units in your account. This kind of ‘phased-in’ investing is known as rand-cost averaging, as it helps to average out the return on your investment.

Falling markets are positive for debit order investments: When markets fall, you are able to buy more units and actually make more money. In the example below over five months you invest R2500. By May the market is still down 7.4% yet your investment is worth R2662.81 (287.56 units at 9.26). A lump sum of R2500 invested in January would be worth R2315.