My family has a long history of participating in cultural savings clubs like a stokvel, but I’m considering exploring other, more formal methods of saving. What steps should I take to transition effectively while ensuring my savings are secure and growing?
Lorika Steyn, Wealth Adviser at PSG Wealth Pretoria East:
Transitioning from your family's stokvel tradition to more formal savings methods is a big step. Your family’s commitment to saving has given you a fantastic foundation – now let’s build on that.
Let’s explore some powerful savings options that can help secure your financial future:
High-interest savings accounts: Think of these as your stokvel’s more flexible version. They're great for short-term goals or rainy-day funds, offering better returns than a regular bank account while keeping your money accessible.
Unit trust funds: These are like a bigger, professionally managed stokvel. Your money is pooled with others and invested in a diverse range of assets. They offer the potential for higher returns but do come with some market risk. It’s a great way to grow your money over the medium to long term.
Tax-Free Savings Accounts (TFSAs): TFSAs let you save without paying tax on returns. They're flexible and can include cash savings or investments like Unit Trusts, all growing tax-free within certain limits. The TFSAs are also essentially a medium to long-term investment product.
Retirement Annuities (RAs): This is a long-term savings option. They offer tax benefits now and help secure your golden years. Think of it as planting a tree today that will provide shade in your retirement.
Starting this journey doesn’t mean abandoning your stokvel roots. Why not begin by putting a portion of your contribution into one of these new options?
Your family's stokvel participation has instilled in you the power of consistent saving. Now, you’re taking that wisdom and applying it to new opportunities for growth. This may feel overwhelming, but a professional wealth adviser can provide personalised advice to help you find the right balance for your goals.
I'm new to investing. How do changes in the economic environment such as an interest rate cut affect the different investment types?
Graham Lovely, Wealth Manager, PSG Wealth, Claremont, Cape Town:
If interest rates go down in isolation, here's how different asset classes might fare:
Bonds:
- Prices will rise, as existing bonds with higher yields become more attractive.
- Yields will decrease, making new bonds less attractive.
- Returns will increase, especially for long-term bonds.
Should yields come down in the bond space we should see strong returns in income funds.
Equities:
- Valuations may increase, as lower interest rates make stocks more attractive relative to bonds.
- Growth stocks and dividend-paying stocks may benefit from lower interest rates.
- Returns may increase, but potentially at a slower pace than bonds.
Real assets (commodities, real estate):
- These may benefit from lower interest rates, as they often perform well in low-rate environments.
- Gold and other precious metals may rise, as lower rates reduce the opportunity cost of holding them.
- Real estate may benefit from lower mortgage rates and increased demand.
Currencies: The currency of the country with lowering interest rates may weaken, as lower rates reduce attractiveness to foreign investors.
Alternatives (hedge funds, private equity): May benefit from lower interest rates, as they often employ leverage and can capitalise on increased asset values.
Keep in mind that this is a simplified analysis and actual performance may vary depending on various factors, such as economic conditions, inflation expectations, central bank actions and market sentiment, as well as the product you are contributing to.
Remember, interest rates are just one factor influencing asset classes. It's essential to consider the broader economic and market context.
You should also consider the following:
Return potential: Equities offer higher return potential over the long term, especially for growth-oriented investors.
Inflation risk: Bonds are sensitive to inflation, which could erode their purchasing power.
Interest rate risk: Bond prices may fall if interest rates rise.
Ultimately, the choice between bonds and equities depends on your risk tolerance, investment horizon, return goals and diversification strategy as well as your personal financial needs and goals
A balanced portfolio often includes a mix of both bonds and equities. If you're unsure, consult a financial adviser and conduct enough research to determine the best investment strategy for your individual circumstances.
I am currently financially stable with a surplus of R3 000 each month and do not have a Retirement Annuity. I already contribute towards a Tax-Free Investment account and am considering investing in stocks but am unsure if this is a safe investment. Where would be the best place to invest part of my monthly surplus as part of a long-term investment plan?
Jacqui Kruger, Wealth Manager, Silver Lakes Wealth Management & Stockbroking:
With a monthly surplus of R3 000 and a focus on long-term investment, you could consider one of the following options:
Retirement Annuity (RA): This is a tax-efficient way to save for retirement, especially since you do not have one yet. Contributions to a retirement annuity are tax-deductible, reducing your taxable income, and the growth within an RA is free from tax on interest, dividends, and capital gains.
Increase contributions to your Tax-Free Investment Account (TFSA): If you have not maxed out your R36 000 annual contribution limit, consider allocating more funds to your Tax-Free Savings account. It is a great vehicle for long-term growth as all returns are exempt from tax.
Stocks (equities): Investing in stocks can provide high returns over the long term but comes with more risk. You can consider a diversified portfolio to manage this risk. Using a platform that offers Exchange Traded Funds (ETFs), which track an index or sector, is a safe option for beginners.
Balanced or aggressive unit trust funds: These funds are diversified across different asset classes (equities, bonds, cash, and property). They are managed by professional fund managers, which reduces the risk associated with individual stock-picking.
A mix of a Retirement Annuity and well-chosen ETFs or unit trusts could give you the balance between long-term security and potential growth. It may also help to speak with a financial adviser to tailor your plan in more detail to suit your long-term objectives.
Growing up, my cultural background did not emphasise financial education and literacy. What essential financial lessons can I now teach my children to help secure their future and build generational wealth?
Lizna De Villiers, Wealth Adviser at PSG Wealth Pretoria East:
This is an important topic, especially in South Africa, where many households live paycheck to paycheck, sometimes out of necessity, and others due to a lack of financial planning or knowledge. It’s crucial to start conversations about money with your children from an early age.
Teach them the concept of money, that things in the home aren’t free — they’re bought and paid for. Playing money-related games, like Monopoly, can help them understand planning and saving, even if it’s just part of family game night.
Introduce allowances tied to chores and guide them in budgeting — saving a portion while spending some. Help them grasp the difference between needs and wants and encourage them to save for non-essential items they desire, like a toy or a game. Handling real cash can make these lessons tangible.
As they grow older, teenagers face more outside influences. It’s essential to reinforce the value of money and goods. Opening a bank account for them, if you haven’t already, is a great step. Explain how savings accounts accumulate interest, making their money grow.
Also, start discussing debt — the cost of instant gratification versus saving up and paying outright. Help them create a budget for their activities, like movies or hobbies, and involve them in family budgeting decisions for groceries or vacations. Teach them about investing for the future by including them in discussions with a financial planner or talking about current world events and how they impact their lives.
In summary, make sure they understand the value of money, and that for future generations to have a better future, somebody needs to start making conscious decisions now.
Hi there! As a business owner in South Africa, I am up against a multitude of uncertainties and challenges such as subdued economic growth, crime and rapidly increasing costs associated with doing business. With all of this in mind, could you please advise on why I need an insurance adviser, as I have many fellow business owners who firmly believe that they are able to help us navigate these difficulties?
Karen Rimmer, Head: Distribution at PSG Insure:
Firstly, it’s important to acknowledge the immense contribution you make to our economy as a business owner, so thank you for all your efforts. As far as insurance advisers are concerned – your peers are correct. Not only are insurance advisers able to assist you as a business owner in managing economic hardship and uncertainty, but they are also able to help you keep abreast of the latest market and regulatory changes that could impact your industry, enabling you to always keep ahead of the curve and ensure that you have mitigated your exposure to avoidable financial losses.
With fluctuating crime rates across our country, advisers can advise on detailed, practical, and cost-effective risk mitigation strategies that will ensure your business’ exposure to financial losses caused by criminality is minimised. Advisers can also recommend suitable insurance products such as property insurance and cyber insurance, the policies of which can provide businesses with financial protection against losses resulting from criminal activities, data breaches, and other risks.
By assessing the specific needs and vulnerabilities of each business, advisers can tailor insurance solutions to address the unique challenges businesses face and ensure comprehensive cover for potential threats. This can extend to dealing with internal criminal activities, which can arise in a business of any size.
Furthermore, advisers can act as trusted partners to business owners such as yourself, offering expert advice and solutions that are bespoke to the needs of your business. I’d suggest reaching out to one of our expert advisers, who will be able to assist you once you provide more detailed information about your business’ specific needs and risk exposures.
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