FINANCE FEATURE

Baby Jake Matlala

LONG-TERM SAVINGS SUCCESS

Traditional stokvels are also looking at long-term investments these days. We explore the options available to you

When you have a short-term financial goal like a relative’s funeral, this year’s school fees, a birthday party or a holiday, turning to your stokvel makes sense. However, what if you want to gear yourself for a bigger financial commitment – like a new car, your child’s university education or your own house? The stokvel is changing its identity.

In order to determine which investment option is best suited to your stokvel, you need to answer a few questions, first:

• Who will be a part of the stokvel? It is best to have members in the group who have the same goal in mind as different goals could lead to friction. • How much money will each individual be able to invest? • How long does the group want to

invest the money for? Keeping your money invested for a longer term means a better return overall. • What is the purpose of investing the money? • How much risk is the group willing to take on an investment? Long-term investments will give your money the chance to grow and provide you with better returns if invested in the right product.

Generally speaking, when it comes to a long-term investment, taking a slightly higher yet well-managed risk option will eventually see the best growth and long-term gains. Investing in a low-risk product means your money will grow steadily but also very slowly, which could be detrimental to your savings goals.

Broker a deal

Consider approaching a broker who can educate you on which products will best suit your needs. He will be able to assist you with drawing up rules for how the investment will be run, which can prevent any impulsive decisions being made which could harm the investment. The rules will stipulate how the money is collected and invested as well as govern how it can be withdrawn, how dividends will be paid out and whether interest will be reinvested. A broker can also act as a neutral intermediary if a dispute between members arises.

You should be able to find a financial adviser at your bank – Standard Bank, First National Bank, Nedbank, Absa and Sanlam all have registered financial advisers who can provide you with

information and professional services. You can check on the Financial Services Board’s website to ensure that the broker you choose is registered with the FSB – visit www.fsb.co.za for more information.

Investment options:

1 Endowment Policy:

There is a five-year minimum investment period with no maximum investment period – you can invest for as long as you like. Invest either a small monthly sum or a large lump sum in the policy and don’t forget, you will also be paying a broker’s commission fee on a monthly basis Should you decide to cut the investment term short, you will pay tax on the money if you withdraw within a five-year period, but after five years it will be tax-free. Should you wish to, you can add life insurance to the policy as an additional benefit.

2 Retirement annuity

With many South Africans struggling to save money for retirement, this is a very important investment to consider. You can invest a lump sum and/or monthly contributions but you will not be able to access the money before you reach the age of 55. After then, you will have optional access to onethird of the sum but the remaining money will be invested in a compulsory annuity. A portion of your premium is tax deductible which means that you will get tax returns from a retirement annuity which can be reinvested.

3 Collective investment schemes (CIS)

A CIS allows you to invest small or large amounts in a portfolio which has a range of shares, including bonds, unit trusts and money market funds on the Securities Exchange. This will spread your risk across a variety of investments and you can stop your debit order at any time.

4 Fixed property (real estate)

If you are in a position to invest in a second property, buy wisely. You can use the rental from the second property, whether it is residential, business or a factory, for income as well as securing an additional asset. Keep in mind that you will have to pay tax on the rental as well as maintain the property.

5 Tax-free Savings Accounts

The government launched a tax-free savings option in March 2015 which allows you to save up to R30 000 a year which will not be subjected to tax, capital gains tax or dividends withholding tax. Only if you should reach the lifetime limit of R500 000 on the account, will you be taxed. If you withdraw money from the account, that will also be deducted from your lifetime limit, so it is best to leave the money in the account. You can withdraw the money from the account without incurring penalties or fees at any time.

Investment tips

• Search for the investment option that best suits your needs and don’t simply take whatever options your broker offers. • Take your time in choosing a broker that you trust and who has a sound reputation for giving good financial advice. • Check the reputation of your broker with their existing clients before signing any paperwork. • Read all the relevant documentation on an investment product thoroughly and make sure you understand all the terms and conditions.