It is never too early to start investing and time is the biggest advantage available to the young investor. Bear in mind that savings accumulate and returns compound (if the money is not withdrawn), so it’s wise to establish an investment vehicle as early in your working life as possible. There is no more powerful force than compounding, where the returns you earn on your investments start earning returns themselves. Put another way, compound returns are the returns you earn on the returns you’ve already earned. As an example, if you invest R100 and earn a return of 10% in the first year, you have R110 at the end of that year. If you earn a further 10% in the next year, you earn R11. You’ve in fact earned a return on the original R100 you invested and the R10 return you already earned last year. Over many years this is an extremely powerful force.
While investing your hard-earned money might sound daunting at first, especially when you have just started working and the latest item of clothing or gadget looks far more enticing, the best time to start investing is when you are paid your very first salary. If you’re past that first salary, the next best time is now.
There are also numerous investment and savings options available that don’t necessarily require a lot of money. Nevertheless, how much you want to save depends on your personal financial goals and the amount you have available every month to invest. An Anchor financial advisor will be able to assist you with this.
To start saving, you need to learn how to budget. From the time you are paid your first salary, it is important for you to work out how (and on what) you will be spending your money. Be aware of any debt you need to repay and look at where you can find spare cash to save. More importantly, make saving a habit. By doing so, after a while, saving will become second nature to you. If you find it difficult to save, consider setting up a monthly debit order (a convenient way to save, since the monthly amount is automatically deducted from your bank account).
Once you’ve budgeted and have set aside a sum of money to save every month, you will need to consider how to invest it – what investment vehicle will be most beneficial to you. Here your own personal goals play an important role. You first need to decide what you want to achieve with your savings. Although most savings products are for longer-term goals such as retirement, young people also have short-term goals e.g. saving to buy a car, a house etc. In terms of long-term goals, the younger you start the better – as a young working person with time on your side, you can consider investing in higher-risk investments such as shares. You can buy shares directly through a stockbroker or you can access them via unit trusts (typically a cheaper way to invest in shares, with lower minimums). Unit trusts can also give access to asset classes beyond equities – such as cash, bonds and listed property. Offshore investment options are also available.
Tax-efficient savings products should also be considered. A retirement annuity is a popular option and ensures you will only access your investments at 55. A tax-free savings account, which allows you to save without having to pay any tax on the growth of your investments, is another good option.
Younger investors will also encounter many events throughout their lives that alter their financial planning and goals. Events such as buying a house, changing jobs and having children all require you to consult with your financial planner and ensure your plan takes account of these big events.
Who can assist?
Anchor has an offering –Anchor Aspirant – dedicated to younger investors. We can assist you in starting your investment journey and can provide you with information on the various options available to you. Contact us on 011 591 0677 or email us at [email protected].