Publications
Partners
Don't wait until you have a large amount of money to invest: the key to building wealth is just starting somewhere, saving regularly and letting your returns generate over time, says Ebrahim Moola of Bobats Wealth Solutions.
According to Moola, investing is about forgoing consumption today – when you're able to set monies aside, while still generating an income – for the sake of future consumption - when you may not be earning as much or at all.
"The magic of investing is the compounding of above-inflation returns over long time periods which effectively increases the value of your future consumption.
"So, investing R10 000 today is a key contribution that your future self and family will be super grateful for," says Moola.
"The key to investing is starting somewhere, sticking to a plan, ideally through a trusted financial advisor and via an automated mechanism like debit orders."
Time – the magic factor
"I'd say it's far better to invest R1 000 per month indefinitely than to make an ad hoc lump sum contribution of R10 000, for example.
In his opinion, investment debit orders are one of the best ways to build long term wealth.
"It usually costs nothing. Banks do not charge, advisors usually don't charge, service providers don't charge. It also harnesses technology to invest smartly - your small monthly contribution can be invested very widely into unit trusts and ETFs (exchange traded funds)," he says.
"Furthermore, it allows anyone to invest. There is no need to have a large lump sum to participate in the market and there is an orderly phasing in of your investment into the market over time.
"The biggest advantage of debit order investing though is the behavioural impact it has. With automated saving, your mind frames your monthly investment as just another monthly expense. You get used to it and it usually sticks, over long periods of time."
Don't be overly fixated with returns in the short term, he cautions. Just focus on growing your income and the resultant capital you can set aside for investments via debit order.
"You need go through the hard yards of consistently saving for at least 7 to 10 years to accumulate a pot of wealth. Usually it is only after this period of sacrifice that your investment portfolio can start working for you and returns start to matter and it takes well over 20 years for your contributions to become meaningless relative to your portfolio’s returns," he explains.
"That's when your portfolio becomes "self-sufficient", at a time when you really need it to be."
Save on tax
He suggests using tax-efficient structures like tax-free investment accounts and retirement annuities where possible and to get a reputable financial advisor to help.
"Whilst SARS is a swear word in many South Africans' vocabulary these days, these tax efficient structures, if used properly to accumulate capital, can save you huge amounts of tax over your lifetime," says Moola.
"The key is to maximise after-tax returns over the long term, which these structures provide."
For long-term investments, he suggests you allocate your monies towards diversified equity and property investments, both locally and abroad.
These asset classes (equity and property) have a long history of generating the above inflation returns critical in growing the real value of your money, and hence your future consumption. Again, a reputable advisor can guide you in building a suitable portfolio.
* Compiled by Carin Smith.
