So you have been thinking of putting a little something away each month, for a rainy day, the kids’ education or simply to add to retirement savings, but you have no idea where to start.
While you consider your options and start to do some research, the first thing to ensure is that any cash in the bank is at least invested in the highest interest bearing account that your bank has to offer. A simple money market call account will certainly give you a far better return that just keeping your cash in a cheque account.
You then need to establish how much you have to invest, be it a lump sum or monthly contribution, or even both. You can now start looking at the various options out there.
For a lump sum or larger monthly contribution, you have the most flexibility, and may start by looking at buying direct share exposure through a stock broker. This may entail selecting a single share each month, or accumulating a few months-worth of contributions before making a purchase. Bear in mind that the smaller the investment value, the higher the effective transaction costs, and the longer it will take to realise a positive return on your investment. There will inevitably also be a monthly administrative charge for having an account open with a stock broker.
For smaller amounts, the best option is to select a unit trust that meets your investment objectives and to invest on a monthly basis. If you want to narrow your focus on one investment house then you can go directly to them but if you want to have the flexibility of selecting and switching between a number of different funds run by different fund managers, then an investment platform will be your best option. Remember to check what the minimum lump sum and monthly investments are for the different options – this may impact your choice. You should also be very sure to compare costs of the various funds and platforms by looking for the TER % (total expense ratio) of each so that you know the annual costs that you are in for.
If you have no predisposed preference for any fund management company and are happy to remain agnostic in this regard, then a very useful alternative is to look at exchange traded funds (ETF’s). These are instruments that are listed on the stock exchange and trade in the same way as shares, but effectively give you exposure to a selection of shares that make up a particular index or sector of the market. A good example is the Satrix range of investments, and the Satrix40 is one which will give you exposure to the top 40 companies, by size, on the JSE. The ETF’s can be bought via a stockbroker if you do go this route, or directly via the company that runs the ETF, as in the case of Satrix. There are administrative costs involved, so again make sure that you are aware of all costs before investing.
From a retirement savings perspective, you can start a retirement annuity, which is a very good idea if you are self-employed, or if your employer does not run a company pension or provident fund, or simply if you would like to enhance you current retirement savings. There are limits to the tax benefits that an individual receives regarding these retirement funding contributions, and it is worth discussing this with your tax advisor.
The options out there may seem daunting, but with a little research and the assistance of a financial advisor, you should be investing in no time at all. As a parting piece of advice, remember that investing in the share market is a longer term commitment, so do not expect incredible returns overnight, but stick with the plan and you will be rewarded in the long run.