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A Fin24 user who started working after completing his studies is looking for the best way to save. He writes:
I recently completed my studies, started working and want to start saving R3 000 per month for a fixed term of 24 months. I would like to know what the best savings plan would be for me to obtain the highest interest rates with minimal risk!
Matthew Chapman and Andrew Duvenage, a CFP® Professional at NFB Financial Services Group, respond:
First of all congratulations on the completion of your studies and welcome to the working world!
When investing, it is important to decide for what and often more importantly; for when we have earmarked specific savings. If I understand your question correctly you have indicated that you would like to save for a period of 2 years at which point you would withdraw this money for a specific event.
However if this were not the case and you in fact had a longer investment time horizon, then the answer to your question would be very different. I will address both scenarios.
Should your investment horizon be two years you would be wise to invest in a more cautious approach. You make mention of the “highest interest rate” - taking this in its most literal form I would assume you are looking for a fixed deposit type savings mechanism. The rates offered by the banks are easily accessible and the investment holds very little risk (unless one of the banks defaults and collapses which we don’t see very often!)
The issue here is that while the investment is not very risky the returns are equally as muted and after tax you may well end up obtaining negative returns after adjusted for inflation, which in this case would be your biggest enemy. Your other option would be to go into a unit trust based investment with a more cautious to moderate mandate. These portfolios typically aim to outperform inflation by 3% to 5% per annum.
If however your investment horizon was more than two years then I would adopt a more growth orientated approach such as an equity unit trust. This would mean taking on the additional risk associated with this asset class although historically equities markets have outperformed all other asset classes when given sufficient time, this typically is between five and seven years. The idea here would be to grow a substantial investment base over time.
In both instances you would be able to contribute the R3 000 monthly, increase/decrease contributions and withdraw from the portfolio as and when you see fit. The consideration which you need to take is how long you are willing to allow the money to work for you without touching it.
As this cannot be construed as formal financial advice it would be in your interests to contact an independent financial advisor who will be able to provide professional guidance with regards to your entire financial plan.
- 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.
I recently completed my studies, started working and want to start saving R3 000 per month for a fixed term of 24 months. I would like to know what the best savings plan would be for me to obtain the highest interest rates with minimal risk!
Matthew Chapman and Andrew Duvenage, a CFP® Professional at NFB Financial Services Group, respond:
First of all congratulations on the completion of your studies and welcome to the working world!
When investing, it is important to decide for what and often more importantly; for when we have earmarked specific savings. If I understand your question correctly you have indicated that you would like to save for a period of 2 years at which point you would withdraw this money for a specific event.
However if this were not the case and you in fact had a longer investment time horizon, then the answer to your question would be very different. I will address both scenarios.
Should your investment horizon be two years you would be wise to invest in a more cautious approach. You make mention of the “highest interest rate” - taking this in its most literal form I would assume you are looking for a fixed deposit type savings mechanism. The rates offered by the banks are easily accessible and the investment holds very little risk (unless one of the banks defaults and collapses which we don’t see very often!)
The issue here is that while the investment is not very risky the returns are equally as muted and after tax you may well end up obtaining negative returns after adjusted for inflation, which in this case would be your biggest enemy. Your other option would be to go into a unit trust based investment with a more cautious to moderate mandate. These portfolios typically aim to outperform inflation by 3% to 5% per annum.
If however your investment horizon was more than two years then I would adopt a more growth orientated approach such as an equity unit trust. This would mean taking on the additional risk associated with this asset class although historically equities markets have outperformed all other asset classes when given sufficient time, this typically is between five and seven years. The idea here would be to grow a substantial investment base over time.
In both instances you would be able to contribute the R3 000 monthly, increase/decrease contributions and withdraw from the portfolio as and when you see fit. The consideration which you need to take is how long you are willing to allow the money to work for you without touching it.
As this cannot be construed as formal financial advice it would be in your interests to contact an independent financial advisor who will be able to provide professional guidance with regards to your entire financial plan.
- 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.
