De-mystifying savings and starting your financial journey
The world of saving and investing can be daunting and if one looks at the current savings stats in South Africa, perceived complexity may prevent people from starting this vital part of their financial wellness journey. Currently only 21.8% of South Africans have 1 week's worth of emergency savings available, which is well short of the recommended 3 month's worth of emergency savings.
Firstly, let's look at some of the main type of savings and investment vehicles that are available to help you start your journey to financial wellness.
Cash Investments: These are normally savings accounts that are available via your bank. There are a variety of options available here from accounts with immediate access to accounts that need notice to access the funds. With a cash investment, the money grows by earning interest on the amount saved. This is a safe type of savings as there is no exposure to the market and no volatility to your investment. This is a great option for short-term saving and for an emergency fund. Depending on the type of product that you choose, you can save from literally R1 per month and in most instances the capital is guaranteed.
Unit trusts: Unit trusts is a collective investment scheme, where the investors monthly contribution or lump sum contribution is added to other investors money, the fund manager then buys the underlying asset classes. This type of investment allows the investor to get access to a wider range of asset classes, such as bonds, property, shares, and money markets. For the monthly contribution or the lump sum contribution, the investor gets a certain number of units, as the underlying investments go up or down, so does the unit price. One can get unit trusts that invest in only bonds, only property, only shares or a combination of those asset classes. There is risk attached to these unit trusts, but with exposure to the growth assets the chance of outperforming inflation is better. These types of investments are great for medium to long-term investing as there are exposure to growth type assets and the minimum contributions can start from as little as R300 per month.
Share investing: With share investing one invests directly into a company that is listed be it locally or internationally or via an Exchange Traded Fund (ETF) which can provide a diversified approach to a broad spectrum of asset classes and industries. This is a great way to start your share investing journey. Investing in the stock market is best suited for longer term investment goals and not for short term goals as one can experience high volatility in returns in the short run which is not ideal for the short-term investor. The adage of it is “time in the market, not timing the market” is important to keep in mind. The returns are made up of capital growth (the share price goes up) as well as dividend payments. Starting your share investing journey is easy with FNB Shares Zero and you can start from as little as R10 with no monthly account fee.
So how does one start the journey to saving and investing:
Starting the journey to investing does not need to be daunting or overwhelming. The important thing is that you start on the journey, first by building up an emergency fund and then look toward longer-term investing. Use the tools that are available to you such as Savings goal on the FNB App or the various investing options that are available to you via FNB.
