As recent news headlines prompt fiscal caution amongst South Africans, many first-time investors are probably wary of starting to put away money for the long-term. However, now is not the time to be sitting on the side lines. Read our article where we outline the basics of what you need to know.
Investing allows your money to grow over time. Contrary to some beliefs, if you were to simply keep your savings under the proverbial mattress, it would actually decrease in value, due to inflation. This means that if the inflation rate is at 6%, your money would decrease by that amount each year.
Simply put, your R100 would turn into R94 over a year.
Obviously this is the exact opposite of what you want for your long-term financial plan.
The picture doesn’t get much better if you look at transactional bank accounts: very little interest is earned and certainly not enough is available to cover the impact of inflation. As with the mattress, your money would be moving backward.
The same can be seen with fixed-term deposits and higher interest bank accounts, many of which offer just below inflation or sometimes just half a percent above. While this may seem a better option on the face of it, this is referred to as ‘sitting in cash’. Your money might not be losing value, but it’s certainly not growing.
This is why investing may be the best option for your future financial security.
To be serious about saving, you need to beat inflation. The typical investment fund available in South Africa would aim to beat inflation by varying degrees, providing the investor with real growth for their savings. For example, if a fund delivers a 10% return, they are providing the investor with a real growth of 4% over the stipulated 6% inflation.
Simply put, your R100 becomes R104 over a year.
Combine this with the effect of compound interest - where you earn interest on your growth - and your savings can increase considerably over the long term, without you having to think about it.
How can I invest?
Investment funds in South Africa offer a variety of options for an investor. They all have different approaches and mandates, but the investment universe is generally divided into these main asset classes:
Intended for the short term and generally offers lower returns compared to other asset classes. Moneymarket accounts are one example.
These are shares in listed companies where you are effectively buying ownership of a small piece of a company. The returns you get depend on the performance of the company on the stock market, amongst other things.
Instead of ownership as you get with equities, here you are effectively loaning money to a government or company for a specific period of time. The returns you get are based off the interest paid back to you on this loan.
This includes investing in listed property companies who invest in retail and business properties to lease them out.
|Cash||Intended for the short term and generally offers lower returns compared to other asset classes. Moneymarket accounts are one example.|
|Equities||These are shares in listed companies where you are effectively buying ownership of a small piece of a company. The returns you get depend on the performance of the company on the stock market, amongst other things|
|Bonds||Instead of ownership as you get with equities, here you are effectively loaning money to a government or company for a specific period of time. The returns you get are based off the interest paid back to you on this loan.|
|Property||This includes investing in listed property companies who invest in retail and business properties to lease them out.|
While this might seem daunting, the choice of which asset classes to invest in is actually handled for you if you invest in a fund.
Funds either focus on one of these asset classes, or they can offer a multi-asset approach which provides the benefits of significant diversification as you are not committed to one specific asset class.
A balance of exposures
Diversification is an important concept in investing, effectively allowing investors to spread the potential risk of an investment. Instead of sweating over the potential outcomes of the ANC presidential race, the impact of issues such as Brexit or what Trump just tweeted, through a balance of exposures you can reduce the impact of single events and give your investments greater chance to grow.
Asset class decisions
This is not only about protecting yourself from the impact of these events, but also about selecting which asset class you want to be invested in. It’s extremely hard to predict which asset class will produce the best returns over the short term. If you look at a 20-year period in South Africa, most asset classes have been both the top performing and the worst performing asset class in different years.
This makes it hard for the average investor to try and predict in which asset class they should be investing. Take for example South African equities, which provided a return of 70.8% in 1999 as the top performing asset class. A year later and equities came in as the worst performer, providing investors a return of just 0.4%.
How many of you would have gone all in to equities at the end of 1999 without the benefit of hindsight?
Multi-Asset: The one stop solution
In recognition of these challenges that investors face, professional money managers – including Investec Asset Management – offer what are referred to as multi-asset or balanced solutions which are not restricted to a specific asset class. The complex decisions of where to spread your money are made by a portfolio manager who has the experience, support, access to information and time to do so.
The benefits of these multi-asset funds have been recognised by investors and their financial advisors, with South African multi-asset portfolios now holding 50% of the unit trust industry’s R2.09 trillion assets under management.
The Investec Opportunity Fund
The Investec Opportunity Fund is one such fund, aimed at investors who do not want to make complex asset allocation themselves.
The fund’s multi-asset approach carefully diversifies your investment across asset classes such as cash, bonds and equities. With a philosophy that focuses on seeking out reputable and quality brands, the Investec Opportunity Fund has demonstrated its ability to successfully manage risk, producing inflation-beating results for two decades.
We all want a secure financial future. We want to be able to live well knowing that money is not a problem in our later years. By investing in a multi-asset fund and navigating the ups and downs of the market over the long term, there is a high probability that the money that you invest today works to provide you with that security.
*Inception date: 02.04.00, A class. Source: Morningstar, as at 30.09.18. Returns are calculated on a NAV-to-NAV basis, net of A class fees, with gross income reinvested. Market indices are gross of fees. Highest and lowest 12-month rolling performance since inception* is 43.8% and -15.7% respectively.
All information is as at 30.06.17 unless stated otherwise. All information provided is product related, and is not intended to address the circumstances of any particular individual or entity. We are not acting and do not purport to act in any way as an advisor or in a fiduciary capacity. No one should act upon such information without appropriate professional advice after a thorough examination of a particular situation. This is not a recommendation to buy, sell or hold any particular security. Collective investment scheme funds are generally medium to long-term investments and the manager, Investec Fund Managers SA (RF) (Pty) Ltd, gives no guarantee with respect to the capital or the return of the fund. Past performance is not necessarily a guide to future performance. The value of participatory interests (units) may go down as well as up. Funds are traded at ruling prices and can engage in borrowing, up to 10% of fund net asset value to bridge insufficient liquidity, and scrip lending. A schedule of charges, fees and advisor fees is available on request from the Manager which is registered under the Collective Investment Schemes Control Act. Additional advisor fees may be paid and if so, are subject to the relevant FAIS disclosure requirements. Performance shown is that of the fund and individual investor performance may differ as a result of initial fees, actual investment date, date of any subsequent reinvestment and any dividend withholding tax. There are different fee classes of units on the fund and the information presented is for the most expensive class. Fluctuations or movements in exchange rates may cause the value of underlying international investments to go up or down. Where the fund invests in the units of foreign collective investment schemes, these may levy additional charges which are included in the relevant Total Expense Ratio (TER). A higher TER does not necessarily imply a poor return, nor does a low TER imply a good return. The ratio does not include transaction costs. The current TER cannot be regarded as an indication of the future TERs. Additional information on the funds may be obtained, free of charge, at www.investecassetmanagement.com. The Manager, PO Box 1655, Cape Town, 8000, Tel: 0860 500 100. The scheme trustee is FirstRand Bank Limited, PO Box 7713, Johannesburg, 2000, Tel: (011) 282 1808. Investec Asset Management (Pty) Ltd (“Investec”) is an authorised financial services provider and a member of the Association for Savings and Investment SA (ASISA). A feeder fund is a fund that, apart from assets in liquid form, consists solely of units in a single fund of a collective investment scheme which levies its own charges which could then result in a higher fee structure for the feeder fund. The fund is a sub-fund in the Investec Global Strategy Fund, 49 Avenue J.F. Kennedy, L-1855 Luxembourg, Grand Duchy of Luxembourg, and is approved under the Collective Investment Schemes Control Act. This document is the copyright of Investec and its contents may not be re-used without Investec’s prior permission.