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Here's what SA financial experts would do with R10 000 in 2020

Jan 13 2020 06:00
Carin Smith

Fin24 asked several financial experts what they would do with R10 000 in 2020.

A favourite choice was a tax-free investment account, with three saying this would be a good idea (preferably with some offshore exposure).

One suggested paying off debt, while another would go for alternative assets like gold or cryptocurrencies.

Unit trusts, listed shares and ETFs also came up as options.

Eugene Visagie, portfolio specialist at Morningstar Investment Management South Africa

Visagie would invest the R10 000 in a tax-free savings account (TFSA).

"This type of product allows investors to grow their capital and receive income or dividends on the investment without incurring any taxes on the growth or distributions," he explains.

"Investors are allowed to invest up to R33 000 a year in such an account - capped at R500 000 over the lifetime of the investor - to enjoy these benefits."

A variety of TFSAs are available, ranging from conservative income products to high-risk, 100% equity products investing both locally and abroad.

"Since this is a long-term investment, investors are able to enjoy the benefits of capital growth and any capital gains. With this in mind, investors should consider taking the maximum amount of risk when selecting the asset allocation for their TFSA," suggests Visagie.

"This would mean allocating to either local equities or global equities. Equities exhibit volatility over time, but investors should view this as a long-term investment and ignore the short-term movement in the market and value of their investment."

For equities, diversification remains the key to achieving optimal growth, he adds. Factors to consider include the style of investment (for momentum and value), investments both locally and abroad; as well as various market sectors.

"Most importantly, do not work on the assumption that yesterday's winners will be tomorrow's winners as well. Investments are cyclical and experience times of underperformance (like SA equities) and times of outperformance (like US equities), but over time these tend to revert to fair value," he says.

Brian Butchart, managing director of Brenthurst Wealth Management

Butchart also suggests the use of a tax-free savings account for the once off R10 000 investment. Because your money is not invested for a fixed term, you have full control at all times, he says.

"[But] keep in mind that any withdrawals cannot be replaced after the annual R33 000 is invested in the respective tax year," he explains.

"That means that, if you invest R33 000 on March 1, 2020 and then withdraw R15 000 on May 1, 2020, you cannot replace the R15 000 later in the 2020/2021 tax year. It is, therefore, encouraged to remain invested and withdraw elsewhere in order to ensure you maximise the long-term tax-free benefits of the TFSA."

Despite the risks of a downgrade, income funds in SA remain far more attractive than most markets as yields in SA are substantially higher than most other global geographies, according to Butchart.

"But as for growth assets, we still prefer global equities. As such, a flexible, actively managed global equity fund which can take advantage of global opportunities on the back of the recent geopolitical risks remains our key strategy and advice for a once off R10 000 lump sum investment, especially if this is a long-term investment," he adds.

For him, an acclaimed and consistent high performer is the Mi-Plan IP Global Opportunity Fund, "preferably in a tax-free savings account". Based in SA, the fund has no restrictions and can, therefore, invest across any asset class anywhere in the world.

Magdeleen Cornelissen, financial adviser at PSG Wealth:

Cornelissen, a financial adviser at PSG Wealth, also suggests using a tax-free investment, especially in the long term.

"It is not possible to pinpoint one sector that will definitely outperform, and in times of uncertainty, one must avoid emotional investment decisions, as these are most often the strategies we regret the most. Diversification is your friend," she says.

"A certified financial planner will be able to assist you with a holistic financial plan to enable you to optimally invest this R10 000 for your long-term financial success."

Cornelissen says for shorter-term investments – for example paying for a holiday or car in the next two years – she would opt for money market or income funds, thanks to relatively high interest rates.

"For longer period investments, equities still remain a good option. One would be wise to follow a diversified approach, which includes local and offshore exposure, granted that you are comfortable with the high level of volatility that could be experienced in this asset class."

Chris van Wyk, affiliated with the PSG Konsult Group:

Van Wyk, affiliated with the PSG Konsult Group, says what you do with R10 000 will be determined by your risk appetite.

He sets out four options, depending on the risk the investor can afford or is prepared to take - noting that this is without considering their tax situation, outstanding debt, job security or family obligations.

Option 1: Hide the R10 000 under the mattress. This will obviously bring you no return and a certain risk of capital loss - 2% to 3% - due to the erosion of the purchasing power of the money because of inflation.

Option 2: If you want no risk of capital loss and a meagre return after inflation, he suggests you invest in fixed period (12 months) bank deposit. An example is Capitec Bank offering 7.44% cumulative on a 12-month return, with no admin fees, and about 2% to 3% return after inflation.

Option 3: If you want moderate risk of capital loss, but the potential for a moderate return of inflation plus 4%, he suggests investing in first class unit trusts to achieve risk-spread over asset classes and domestic and international securities. An example would be putting R3 000 of the R10 000 in the Allan Gray Equity Fund, R3 000 in the Prudential Enhanced Income Fund, and R4 000 in Prudential Dividend Maximizer Fund (B).

Option 4: If you are prepared to take a high risk of considerable capital loss, but equally, the high potential for significant capital gain, you can invest directly in two or three listed shares deemed to be performing below potential. For example, R4 000 in Stadio Holdings, R4 000 in Rand Merchant Insurance Holdings, and R2 000 in Shoprite Holdings.

Chris Eddy, head of investments at 10X Investments:

Eddy suggests focusing on areas you can control: namely, paying off credit card debt, choosing an appropriate asset mix for your goal and time horizon, and keeping fees down.

"Year in and year out, predictions are made at the beginning of the year on what supposed experts think the markets are going to do. Invariably they are proved wrong. If you have R10 000 to invest you should focus on the factors you can control and not what you or anyone else thinks the markets are going to do," he suggests. 

He recommends paying down or clearing short-term debt. For example, if you are paying 15%, or even 18%, on your credit card, paying that debt off can be considered a guaranteed 15% or 18% return, which makes it a "no-brainer", in his view.

If you don't have short-term debt, he suggests you ask yourself what you are saving for. Your investment should match your goal and time horizon.

"If you are saving for a long-term goal, meaning that you hope to build wealth over many years, you should invest the money in a well-diversified portfolio of growth or 'risky' assets that generate wealth over the long-term, such as a high-equity portfolio," he says.

"If, however, you are saving for something like a holiday or a down-payment on a house or a car, and will need the money in the next 12 to 18 months, you shouldn't be taking on any risk at all and you should be investing in a money market fund."

Sean Sanders, CEO and co-founder of Revix:

There's only one thing we can be sure of: an unpredictable 2020, according to Sanders.

"However, while politics and macroeconomic events come and go, investors should remain committed to a steadfast long-term strategy. This doesn't mean they shouldn't change with the times, but they shouldn't let the short-term noise block out the long-term opportunities," says Sanders.

He suggests investing R10 000 in a diversified portfolio of alternative assets such as gold and cryptocurrencies, as these so-called alternative assets are not correlated to the same risk factors and economic drivers as more traditional investments such as stocks and bonds.

"And since traditional investments are hovering around all-time highs focusing on them is a relatively high-risk strategy," he says.

In his view, gold acts as a safety net in terms of economic uncertainty, is a rand hedge, and most of the time its value moves inversely to risky assets like stocks.

"Gold also acts as a hedge against inflation and has a limited supply, so unlike central banks who are printing money at unprecedented levels, gold's supply remains steady," he says.

He would also invest in the top-10 cryptocurrencies. As a "nascent asset class" this can be viewed as a high-risk and high-return opportunity, he says. Furthermore, just like gold, it's a rand hedge.

"Bloomberg recently reported that Bitcoin was the top-performing asset of the last decade gaining 9 000 000%. This is a controversial asset class but with greater regulatory clarity, more institutional onramps and the forthcoming release of China’s digital yuan, there's a big growth opportunity in the top crypto assets," says Sanders.

Abri du Plessis of Gryphon Asset Management:

Du Plessis says he would invest the once-off R10 000 in Kruger Rands.

"I like Kruger Rands, because metal prices and commodity prices in general, are at inflection points and appear to be strengthening. With the rand strengthening quite a bit into the old year, it is probably close to the best level it can go to. Any rand weakness from these levels will benefit gold, which is priced in US dollars," he says.

"With a lot of uncertainty in financial markets also, which can probably go either way, gold as a safe haven is the place to be. If commodities pick up on the back of global economies improving or markets melt down because of global uncertainties and further economic slowdown, gold will benefit either way."

Nesan Nair, senior portfolio manager at Sasfin Securities:

Nesan Nair, senior portfolio manager at Sasfin Securities is of the opinion that R10 000 would be too small for a share portfolio, so a unit trust or ETF would be better suited.

"I would suggest an offshore based one is preferable, subject to the investors risk appetite and investment objective - a Global ETF like Sygnia World is a good example," says Nair.

Gustav Potgieter of Aurum Trust:

Assuming a once-off R10 000 investment with a long-term investment horizon, Potgieter suggests finding a fund with more offshore exposure, but not limited to a specific region.

"My suggestion, if you are you prepared to take volatility, is to invest in a fund exploring global opportunities, in either developed or undeveloped countries. Sit back for 5 years and look at your return after five years and do not stress about the volatility. That is what I would have done with my R10 000," he says.

South Africa offers fewer opportunities in terms of available companies listed on the JSE. Therefore, it is better to diversify geographical and into different currencies. An interesting fact is that there are more unit trusts than listed shares in South Africa. Furthermore, the current forecast for economic growth for 2020 is less than 1% for South Africa. That has a negative impact on the investment markets.

investment  |  tax  |  saving  |  money  |  debt
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