Think investing’s only for people with R10K to spare? Or that it’s too late for you to start? Experts say the biggest mistake is waiting. Currency broke down the most common questions beginners have and the advice might just change your mind.
The world of investing can be a daunting place, but experts say waiting for the ‘right time’ to dive in is one of the biggest mistakes you can make. We asked those in the know some questions that newcomers might have.
In a country with a stagnant economy and spiralling cost of living, South Africans are struggling to get a handle on their personal finances.
Debt plays a large part of that. The average person spends about 68% of their salary on servicing debt, according to DebtBusters’ fourth-quarter debt index. The problem is most acute for those at the lower and higher income levels. Those bringing in less than R5,000 are putting 75% of their income towards debt repayments; for those earning R35,000 and up, that figure sits at 74%. These ratios are at their highest-ever levels.
The upshot is a national savings crisis, with only about 6% of South Africans in a position to retire comfortably, according to investment manager 10X.
Figures like this highlight the need for financial literacy – especially when it comes to investing. Making the right financial choices can help lift the burden from those trying to escape the debt trap, or young people looking to build wealth later in life.
But it’s all easier said than done – the investing space can seem exclusive and difficult to break into, with its highbrow jargon and complex figures. Understanding the system is often the only hurdle – which is why we asked some of the best minds in the business a few of the questions beginners may have.
How much money do I need to start?
The general consensus is: not much.
Take the idea that you “need money to make money”. It’s an incomplete statement, says Vestact’s Bright Khumalo. “What the phrase leaves out is the habit of saving and investing. That’s the real game-changer.” As he explains it, you can’t really start investing until you have a handle on your savings.
EasyEquities CEO Charles Savage says something similar. “The idea that you need a lot of money to start building wealth is outdated and exclusionary,” he tells Currency. “The most important number is the one you can commit to consistently – whether that’s R100 a month or R500.”
Fractional share ownership can help you out in this regard, he says, allowing you to invest in big-time shares like Apple with only R50.
Nerina Visser, a strategist and adviser at ETFSA, says it’s all about planning. “A good starting point for someone with a job is committing to R1,000 a month: R400 to an emergency fund, R300 to retirement savings, and R300 to a tax-free account. If you can start with this, you will be well on your way to building wealth in a sustainable way for the long term.”
The magic is in the habit.
What sort of investments should I have?
For many, investing is a “set it and forget it” endeavour; you leave money in an account for a few decades until it is time to retire. These proper retirement investment accounts are called retirement annuities. They have “attractive tax benefits”, says Satrix head of business and marketing development Duma Mxenge – though “you need to be aware that your money is locked in until at least age 55”.
But you can invest for numerous reasons, not just for a long-term safety net; there are plenty of short-term investment options too. An everyday investment account should cover you for goals like saving up for a car or an education, or setting up an emergency fund, says Mxenge.
Here, you should invest in something low risk and accessible, and the most common option is a money market account. This is a high interest-bearing account – a beefier investment option than a savings account. Most South African banks offer them, so they are easily to set up.
Then there’s the tax-free savings account (TFSA). It allows you to invest R36,000 a year, up to R500,000 in your lifetime, so it can be great for medium- to long-term investment plans.
TFSAs typically include a pretty nifty range of investment products, from bank savings accounts to exchange-traded funds (ETFs). And you don’t pay tax on your returns, so all that delicious interest earned is yours alone!
“The tax savings associated with investments – no capital gains tax, no dividend withholding tax, in addition to the no tax on interest – are what you’re after, and what you want to maximise,” ETFSA’s Visser says.
Watch out for low interest rates that typically come with banking accounts or high transaction costs on investment products, she warns.
What should I invest in?
The million-dollar question. Even the experts say it is risky to choose specific stocks to invest in. They recommend that beginners investigate ETFs.
An ETF is a basket of shares, usually stocks or bonds, all bundled together as one investment option. Khumalo suggests the JSE top 40 as a solid local option. “My personal favourite, though, is the S&P 500 ETF, which gives you a slice of the 500 largest companies in the US. It’s diversified, global, and has delivered strong long-term returns.”
Savage says beginners often start with the Satrix top 40 ETF, the S&P 500 ETF (again), and the CoreShares Total World ETF. For those interested in cryptocurrencies, there’s also EC10, a “beginner portfolio”, which blends stability with some “personal conviction – without overexposure to risk”.
Mxenge’s advice is to focus on having a diversified portfolio. “This means spreading your investments across different asset classes – such as equities, bonds, property, etc. Equities, in particular, tend to outperform other asset classes over the long term, making them a key component for building wealth,” he says.
What mistakes should I avoid?
We inevitably fumble, but no-one wants to crash and burn when it comes to their finances. Still, the experts agree that the worst thing you can do is not act. “The biggest mistake new investors make is waiting for the ‘right time’ or ‘enough money’ before they start,” says Khumalo.
“The truth is, time matters way more than timing. Start with what you have.”
When it comes to using your money wisely, Visser recommends sticking to your plan over anything. “Don’t get distracted from your investment plan by noisy news that results in feelings of either fear or greed – stay on track with your plan.”
She also reminds beginners “not to expect a straight-line journey” – the nature of investments is to go up and down over time. Just ride the wave.
Investing can indeed have a lot of noise around it, and this is often overwhelming and confusing. Savage warns beginners against “chasing hype or tips – if you don’t understand it, don’t buy it”.
The general idea is to not be afraid – ease yourself in, assess how much risk you are willing to take and stick with that.
How do I learn more?
The good news is you don’t need a fancy degree to learn about investing. Visser says it’s more like learning to drive – you just need to get behind the wheel and practice. “I recommend getting started with a regular monthly contribution to something simple like a balanced fund, and then learn on the job,” she says.
Khumalo understands how nerve-wracking that can seem, but says the fix is simple. “Like anything in life, just start with the basics. Get curious, take charge. YouTube is your best friend here, and there’s no shortage of great content out there.”
DIY investing is super easy these days, with apps like EasyEquities and Satrix that anyone can start with. And even if these seem complicated, Savage says his company meets people where they are at. It teaches people the basics “with EasyAcademy content, plain language, and a community that grows together”.
No-one deserves to feel like they aren’t “cut out” for investing; you do not need a suit or briefcase to fit the description. Download some apps, read some articles, and talk to friends and family about how they invest their money. Soon, you’ll be wondering why you didn’t start sooner.
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