Cape Town – A Fin24 user who wants to start saving more this year wants to know about the savings alternatives.
She writes: "I'd like to start saving more this year. I have a relatively small savings plan with Old Mutual and most of my unspent money has been going towards the deposit for the home my partner and I wish to buy. In terms of my debt, I have a car that I'm paying off (about R35K) and that's it.
No credit card or other loan debt. I am a mid to senior level professional so my earnings are within that bracket. What is the best saving avenue or plan available to me? Thanks."
Matthew Chapman from NFB financial services responds:
Based on the information given, I would assume that your primary goal is to save for the deposit of the house. The time horizon for this kind of savings is ordinarily around 1-3 years.
Therefore, given the current market conditions, where we are seeing increased volatility in risk assets, alongside the short term time horizon for your investment, an investment into a lower risk portfolio may be better suited.
What must be considered in low risk investments are the prospects of delivering inflation beating returns, in order to retain the real capital value of your money.
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Solutions in this space include money market funds or flexible income funds (unit trusts), which would offer you easy accessibility should the opportunity presents itself to buy a new home, while limiting wild swings in the value of your funds.
Alongside saving for your deposit, you should also consider formally saving for retirement in order to maintain your standard of living throughout your retirement. Often South Africans can't afford to retire as they don't save enough.
Tax efficient products like retirement annuities or tax free savings accounts should be considered to provide for retirement savings.
One should strive to retain a diversified portfolio of liquid investments, alongside less liquid more tax efficient type products which should allow for the optimal combination of income generating assets in retirement.
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