Investing is when you buy financial assets and put money in financial instruments for a specific period (usually longer than 3 years) to make more money and grow your wealth. Financial instruments or assets include shares, property bonds and cash.
- To build financial wealth for you and your family.
- To help your money grow by making it work for you.
- To have money for bigger, long-term goals like getting your children through school, saving for your retirement or buying a home.
Saving is delaying immediate spending until you accumulate enough to spend on something more worthwhile in the future. You may earn interest while accumulating the amount you need, but the interest is probably insufficient to give you growth after inflation. Investments should be made for longer periods that enable you to achieve the power of compounding and growth that is above inflation and tax.
One way to gain easy access to investing is through unit trust funds.
When you put your money into a unit trust, also called a collective investment scheme, your money is invested together with money that other people are also investing. The money is managed by a fund manager, whose job is to make sure that the money is invested responsibly, to allow the money to grow.
When you invest in a unit trust fund, an experienced investment professional selects which shares, bonds, property shares, money market or other securities to buy for the fund.
Investing in individual shares may require more money than you have and picking just one or a few shares is risky. By investing all your money in one share, you are effectively putting all your eggs in one basket and if this basket loses its value, so does your entire investment. In a unit trust fund your investment is diversified. One of the ways unit trust funds diversify is to invest across different investment types or instruments.
When you buy a part of a business. You share in owning the business. You invest your money in the business, and when the business makes money, it is making you money too but if the business loses money, you may also lose the money you invested.
Companies issue shares to raise money to grow their businesses, which are then bought and sold by investors on stock markets such as the Johannesburg Stock Exchange (JSE).
By investing in a bond, you lend money to a government. A bond is a financial tool that is used by governments, municipalities, State Owned Enterprises and companies to borrow money from investors.
When investors buy a bond, they in essence give a loan to the organisation issuing bonds, who then repays the loan with interest.
You can invest in property by buying a house where you become a landlord and find tenants.
You can also invest in property by putting some money in a property fund or Real Estate Investment Trust. These funds invest in different kinds of properties including commercial (office blocks), industrial and retail (shopping centres).
In this type of investment, your money is put together with other people’s money and then invested by the bank in businesses. Money Market investments are considered low-risk (you have a low chance of losing your money).
- Exclusive events – If you are invited to an ‘exclusive’ event to sign investment documents, divulge personal information, or even part with your money, think twice about attending.
- Recruitment – when you are asked to recruit other people to join the investment.
- Get rich quick schemes – If it sounds too good to be true, it usually is. Exercise extreme caution when you are presented with the promise of high returns in a short period of time.
- No mention of risk – Even the most renowned financial trading firms will tell you that their investment opportunities involve risk. Therefore, be suspicious of guaranteed high returns with no risk.
- No sign of accreditation – You should only ever trust your money with a company accredited by or registered with the Financial Sector Conduct Authority (FSCA). Contact the Financial Sector Conduct Authority on Tel: 0800 20 37 22 | Email: info@fsca.co.za | website: www.fsca.co.za
- You need to have some knowledge before investing, so it is important to do some research and not rush into signing anything.
- You can be assisted in the investing process by consulting with a financial advisor or someone at your bank or a financial services company. Explain what your goals are, and how long you want to invest, and they can help you look at a product that will be suitable for your goals and the number of years you are prepared to leave your money invested.
- Check that the financial advisor and the financial services company where you get assistance is registered with the Financial Sector Conduct Authority – FSCA.
- Check that you have some savings that you can access if you need money quickly or in an emergency. Check that you have accessible money and won’t be forced to withdraw from your investment.
- Start small and you may increase your investment as your confidence improves.
- Don’t wait until you have a large amount of money to invest. Some investments allow you to make contributions monthly.
- Exclusive events – If you are invited to an ‘exclusive’ event to sign investment documents, divulge personal information, or even part with your money, think twice about attending.
- Recruitment – when you are asked to recruit other people to join the investment.
- Get rich quick schemes – If it sounds too good to be true, it usually is. Exercise extreme caution when you are presented with the promise of high returns in a short period of time.
- No mention of risk – Even the most renowned financial trading firms will tell you that their investment opportunities involve risk. Therefore, be suspicious of guaranteed high returns with no risk.
- No sign of accreditation – You should only ever trust your money with a company accredited by or registered with the Financial Sector Conduct Authority (FSCA). Contact the Financial Sector Conduct Authority on Tel: 0800 20 37 22 | Email: info@fsca.co.za | website: www.fsca.co.za
- You need to have some knowledge before investing, so it is important to do some research and not rush into signing anything.
- You can be assisted in the investing process by consulting with a financial advisor or someone at your bank or a financial services company. Explain what your goals are, and how long you want to invest, and they can help you look at a product that will be suitable for your goals and the number of years you are prepared to leave your money invested.
- Check that the financial advisor and the financial services company where you get assistance is registered with the Financial Sector Conduct Authority – FSCA.
- Check that you have some savings that you can access if you need money quickly or in an emergency. Check that you have accessible money and won’t be forced to withdraw from your investment.
- Start small and you may increase your investment as your confidence improves.
- Don’t wait until you have a large amount of money to invest. Some investments allow you to make contributions monthly.
Saving for retirement will enable you to meet your lifestyle needs and expenses during your retirement years.
A pension or provident fund is normally established by an employer for the investment of employees’ retirement fund savings. Both the employer and the employee contribute to the retirement fund.
This is a long-term investment product that lets you save for retirement as an individual. You can start a retirement annuity (RA) with a company registered with the Financial Sector Conduct Authority – FSCA. This is a great option if your employer does not offer a pension or provident fund benefit or if you would like to top up what you are already saving with your employer.
The Two-Pot system is designed to help South Africans strike a balance between long-term retirement savings goals while providing prior access to retirement savings for emergencies and life’s other unexpected events.
- Allows members of Retirement Funds to have some access to savings without placing their employment at risk.
- The need for greater preservation of retirement income.
- 10% from the Retirement Savings Fund balance of each fund member as of 31 August 24 will be transferred into the Savings Pot as “ Seed” to kickstart this pot. This 10% seed is subject to the limit of R30 000 and is once-off.
- From 1 September 2024, when a retirement fund member contributes, two thirds of this money will go towards the Retirement Pot and one third will go towards the Savings Pot.
- In times of difficulties, an individual can withdraw money from the Savings Pot, but this means they will have less for their retirement.
- The Retirement Pot needs to remain invested and not accessed until retirement age.
- The withdrawal from the Savings Pot can only be done once every tax year, from 01 March to 28 February.
- The minimum (lowest amount) to withdraw is R2 000.
- You may withdraw once every tax year from your savings pot,
between 01 March and 28 February. - The minimum withdrawal is R2 000.
- You will be taxed on the withdrawal, consult a financial adviser or someone from your HR or retirement fund administrator to check the tax implications before withdrawing.
- You may also be charged an administration fee when withdrawing.
- Only withdraw if you are in serious financial difficulty.
- You may move money from your Savings Pot to your Retirement Pot if you wish, you can move all of the money or a part of that money, however you cannot move it back to the Savings Pot once you have moved it to the Retirement Pot.
When you move jobs, you need to decide what you will do with your pension or provident fund. One option you can consider is a preservation fund. A preservation fund is a fund that allows you to keep your funds saved until you retire. Doing this keeps your savings safe and allows you to keep your tax benefits (unless you move from a pension to a provident preservation fund, the tax benefit will not apply in this case).
Good to know when moving jobs:
- A preservation fund lets you move your money to another investment without paying tax (unless you move from a pension to a provident preservation fund).
- You cannot contribute more money to your preservation fund.
- You can make one cash withdrawal before you retire, which is taxable.
- You can also choose to leave the savings in your previous employer’s fund. This is called ‘deferred retirement’. You cannot add any more money to the fund, but it will remain invested.
- You don’t have to use a preservation fund. You could transfer your funds to the new employer’s fund. You could also consider opening a retirement annuity
Why should I choose my beneficiaries carefully?
A beneficiary is someone who will benefit financially from your savings in the case of your death. It is important that we nominate or list as beneficiaries, the people who depend on us financially including those who are entitled to maintenance. When our circumstances change, such as when we get married, have a new child born or adopted, divorce etc, we need to update our beneficiaries.