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Expert's Satrix 40 response queried

Fin24 user writes to query an answer provided by Mike Brown, managing director of etfSA, to a question regarding investments in Satrix 40.  

Brown explained that the value of a R3 600 lump sum investment in Satrix 40, based on the actual history of the Satrix 40 price on the JSE, after three years, would now be R5 505, but a R300 every month debit order over three years would have a current value of R14 569.
 
"The key to recurring debit order investments is to keep this monthly investment going for as long as possible," said Brown.

The query by Fin24 user Janice:

A comparison is made between a lump sum investment of R3 600 over three years and a debit order of R300 over a three year period.

The problem is that R300 per month over three years is an investment of R10 800 not R3 600, so in the comparative table the lump sum investment of R3 600 can only be compared to the debit order investment of R300 after one year, not three years.

In addition, dividends have not been taken into the equation.

Brown responds:

The response of the Fin24 users to the article published in January this year, about the comparison between a debit order and lump sum investment that a three year R300 per month debit order investment is a bigger capital sum than a R3 600 once-off investment, is of course correct.  

My reply was to respond to the reader, who said that they had invested R300 per month in Satrix 40 for a year and what should they do now?

The intention of the article was to point out the benefits of continuing to do a R300 debit order for a longer period of time as this would lead to continued steady capital accumulation.

The key issue was to indicate that a decision to do a debit order investment for a limited period of time (say one year) is not as good as keeping that debit order going for an extended period of time.

To revisit the figures, I show the returns for a R300 per month investment in the Satrix 40 and Satrix Indi ETF, over the past ten years (to 12th April 2014).

These are actual returns and include the reinvestment of all dividends.

The above table shows that the longer the debit order stays in place, the greater the value of the investment.

This is not only because of the steady increase in capital as the debit order is invested, but because of the growth in the capital already accumulated.

The table also shows that the choice of ETF can be critical. The Satrix Indi ETF investment is worth some 45% more than the Satrix 40 ETF investment after 10 years, despite the same amount of capital being invested.

The temptation to withdraw capital or to stop a debit order after one year is not a good investment decision.

In order to grow your investment, you need to “preserve” your capital for an extended period.

The longer you keep investing and stay invested, the greater your investment accumulation over time.

- Fin24

Do you have a pressing financial question? Post it on our Money Clinic section and we will get an expert to answer your query.

Disclaimer: Fin24 cannot be held liable for any investment decisions made based on the advice given by independent financial service providers.

Under the ECT Act and to the fullest extent possible under the applicable law, Fin24 disclaims all responsibility or liability for any damages whatsoever resulting from the use of this site in any manner.

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