National Savings Month: Building Financial Strength for the Future

July marks National Savings Month in South Africa -  time to reflect on how saving and investing work together to build financial resilience. This annual campaign promotes a culture of smart money habits, encouraging individuals, families, and businesses to make informed financial decisions for long-term stability and growth.

While saving is a great way to build a safety net through simple interest, investing unlocks the power of compound growth, where your earnings can generate additional returns over time. This makes investing a powerful tool for accelerating wealth creation and achieving financial independence.

Why Healthy Spending Habits Matter in the Long Run 

Smart spending plays a key role in navigating inflation and building financial resilience:

• More room to invest: Thoughtful spending frees up capital that can be directed toward investments, whether you're looking for passive income-generating assets or safe havens that may outpace inflation in the long term and provide income for short-term needs and wants; or exploring other investments like property, crypto, local or global stocks.
• Stronger financial resilience: Managing your spending helps create emergency funds and savings buffers, which protect your lifestyle when prices rise unexpectedly. 

What Are Safe Havens?

Safe havens can play a critical role in a well-balanced portfolio, particularly relevant during Savings Month when protecting wealth is a core theme.

• Gold: Usually seen as a reliable store of value, especially during inflationary periods or times of currency weakness.
• Government bonds: Backed by the state, they offer stability and predictable returns, often making them a trusted option when markets are volatile.

For context, gold prices have surged in recent months, benefiting from rising geopolitical tensions and market uncertainty. This uptick supports not just the commodity itself, but also ETFs and mining companies exposed to gold. Meanwhile, South African government bonds are offering attractive yields, up to 11%, making them a compelling option for income and capital protection.

Gold and government bonds are also held by the South African Reserve Bank as part of its reserves strategy to promote financial and economic stability. This reflects their long-standing reputation as trusted safe-haven assets, even at the institutional level.

Tax-Free Savings Accounts and Retirement Investments 

Tax-Free Savings Accounts (TFSAs) and Retirement Annuities (RAs) are long-term investment tools designed to promote saving through valuable tax benefits. TFSAs allow for tax-free growth and withdrawals, while RAs provide tax-deductible contributions and tax-deferred earnings, potentially helping investors grow and preserve their wealth more efficiently.

• While individual gold companies are not available in a TFSA, exposure to gold is possible through ETFs that invest in gold mining companies. 
• South African government bonds are available on EasyEquities through both TFSA and RA. 

Passive and Fixed Income

Passive income refers to earnings generated with minimal ongoing effort, such as dividends from shares or rental income. Fixed income includes predictable, regular payments like bond interest or coupon payments. 

Both could be valuable tools for building long-term, stable returns:

• In a TFSA, dividends from products like ETFs are tax-free.
• Government bond coupon payments, which are taxable in an EasyZAR account, are tax-free in a TFSA. 
  • Several government bonds are expected to pay a coupon payment later in July

Conclusion 

Assets like gold and government bonds are often considered safer havens; when geopolitical events or economic instability affect stock markets, investors typically shift capital into these safe havens. This move can help stabilise a portfolio, provide peace of mind, and reduce the risk of potential losses.

That said, investors have a range of options to diversify and grow their wealth, such as local and global shares, crypto, unit trusts, ETFs, and property investments. Each offers unique benefits depending on your goals, time horizon, and risk appetite.

This National Savings Month, consider how a balanced mix of savings and investments, across both safe havens and growth assets, can help you build long-term financial independence and resilience.

POV: Inflation watching you spend without investing 👀

Government bonds offer a reliable way to earn fixed income by lending money to the government in exchange for regular interest payments. 

Dividends are one of the many key components of investing, representing a share of a company's profits distributed to its shareholders. 

Special dividends, also known as extraordinary dividends, are one-time payments made by companies to shareholders due to specific financial events, like windfall profits or asset sales.