If 2020 showed us anything, it’s that we need to be financially ready to handle sudden shocks. Thousands of South Africans lost their jobs and livelihoods, or had their salaries and incomes slashed.
A pandemic should not have been necessary for people to awaken to their financial vulnerabilities, but it was. More and more people are now worried about their future. Taking things for granted, enjoying life now, eating life with a big spoon is no longer an option.
Investing and building wealth is something everyone should be doing. No investment is too small. Anyone can start with whatever they have, and with patience, hard work and a bit of luck, make for themselves a good and comfortable life.
One of the richest men on the planet, Warren Buffet, once said, “If you don’t find a way to make money while you sleep, you will work until you die.”
The best investments in South Africa right now
It goes without saying that you’ll need some capital to make any kind of investment. Sure, there are those where you just put in your time, but they are few and not the subject matter today.
Here are some 4 good investment options you can make with any amount of money, from a few thousand rands to millions.
If you have a few thousand rands, buying government bonds is a solid and stress-free investment.
The fact that it is so stable and predictable means the returns are not the best, but they are reliable. You should expect about 5 – 8% potential return on investment (ROI) per year.
With little money, it may not sound like a lot. But it is a great way to have your free cash earn more money, instead of sitting in a bank account earning nothing.
On the other hand, with a lot of money, 6% can amount to figures that will make you retire on the spot.
Investing in bonds ultimately depends on your confidence in the South African government.
There are different types of bonds, but the one easily available to most South Africans is the Retail Savings Bond.
They are available as follows:
/ Fixed Rate Retail Savings Bond series consisting of bonds with 2-year, 3-year and 5-year terms. These earn a market-related fixed interest rate payable on the interest payment dates until maturity. Different interest rates apply to each of the maturities in the series.
/ Inflation Linked Retail Savings Bond series consists of bonds with either a 3-year, 5-year or 10-year maturity. Capital amounts invested in Inflation Linked Retail Savings Bonds are inflation adjusted over the term, and a floating interest rate is payable every 6 months on the interest payment dates.
As of this writing, the interest rates are as follows:
|Fixed Rate||Interest||Inflation linked||Interest|
|2 Year fixed rate||6.00%||Inflation linked 3 year bond||2.50%|
|3 year fixed rate||6.75%||Inflation linked 5 year bond||3.75%|
|5 year fixed rate||8.00%||Inflation linked 10 year bond||4.75%|
The bonds have a minimum investment of R1 000, and a maximum investment of R5 million.
The stock market is still one of the best places to mint millions. In South Africa, we are fortunate to have the most vibrant and largest stock market in all of Africa, the Johannesburg Stock Exchange (JSE).
With just a couple of thousand rands, you can dip you fingers into the big boys club.
A stock is just a fancy way of saying that you own part of a company. It means you are invested in that company, and will henceforth own its successes as well as its failures.
It goes without saying that identifying a stock to buy should be based on how well a particular company is doing, and how well you think it will perform in the near or distant future.
There are many strategies used by experts in this field, which I’m guessing, if you are reading this, you are not.
You should note that the average investor is very bad at investing in the stock market. While the market as a whole, or representative indexes may give average annual returns of about 10%, most individual investors barely make 5%.
Whole books have been written about the stock market, but the basics are the same. Unless you know something you should not because others do not (insider trading), always be guided by the fundamentals of the companies you want to invest in. “Following my instincts” is a famous last word of rich people, just before they got poor.
In a later article, we will discuss how some stocks particularly in the US don’t always follow the rules.
If you are not very confident (or good) in your investing, but intend to live a long and comfortable life, you still have options.
An annuity is designed to help you in your later years. It supplements other retirement incomes like your pension.
You invest your money with a life insurance company, and then they will pay you regularly using an annualized rate. In short, they invest the money on your behalf, earn interest on it, pay themselves, then pay you back with interest, over a long period.
Annuities are safe and stress-free, which makes them very attractive. You also don’t need huge amounts. You can put in very little. Just make it a habit.
Real estate never goes out of fashion. As long as humans exist, there will be need for new housing.
The barriers to entry are huge on this one, which means the returns can be great. On average, you can expect close to 10% ROI on your investment.
However, unlike many other forms of investment, the underlying assets continue to appreciate. This is called Capital gain.
That means that if you hold on to a rental property for 10 years before selling it, you will have made back your money from rent alone. And then you’ll be sitting on a property worth a lot more
than what it was worth 10 years ago.
If you really want to invest in the property/real estate market, but are held down by your shallow pockets, do not despair. This is the age of the internet and anything is possible.
Enter, crowd funding. Think of it as a Kickstarter for property. Developers come up with plans and a budget, then crowd-fund their project from small-time investors over the internet. As an investor, you get a proportional share of property and all its future profits.
This model is still in its infancy, but there is a lot of promise. The biggest player right now is Crowdstreet.
We’ll be publishing a future article on this kind of investing.