Investing for dummies

[mimi_oftwo]

Hey, so I (31 F) am looking for some direction.

Long story short; my mom passed away unexpectedly in 2022 she had nothing in retirement or savings and it was a big wake up call for me. At the same time, I came across Caleb Hammers videos and started to educate myself around making my money work for me and not the other way around.

But as explained I don’t come from a financially literate family and what I have done over the past year is try educating myself, kill my debt (my car repayment is on it is last month, whoop whoop!) and I paid off my credit card and closed it – I don’t trust myself to utilise it correctly yet. I have also squirreled away as much money and I can, including work bonus and any freelance money that came my way – I have created a 55k emergency fund and have about 23k outside of that.

I budget religiously now and stick within it very well. But I am looking for advice on how to grow the money I have saved? They are both in Capitec accounts that are multi deposit locked accounts that receive interest but how does one go about investing the S&P 500? Am I able to pull money out if I need it? Ideally, I would like to build on the 23k for the next couple of years to build into a home loan deposit and leave my emergency fund untouched unless it is a drastic emergency.

I also deposit a measly R650 to an Old Mutual RA which I have done for about 10 years, but I really would like to drastically increase that amount – I very much had the “that’s futures me’s problem” mentality that I have switched.

Im looking for any advice that is beginner friendly, that’s easy to digest and understand as well as manage.

I have a financial advisor that comes standard with the RA he is a really nice guy we get on well, but I am worried because he works for OM that he will only recommend their products even if there are better options out there.

T.I.A

 

[resjudicata]

@mimi_oftwo Great work on being self aware of your spending capabilities and planning for your future! You seem to have the basics down so I’m not going to go into any of that.

For investing in shares there are three things to consider:

1) The duration of investment is typically longer term for shares (10+ years). Due largely to the small fluctuations in share prices in the short term. You could have an investment go down to -20% for a year or two but in 5-10 years have astronomical growth. More realistically you’ll be looking at a small but steady year-on-year growth that will add up hugely in the long term. But if you’re in a pinch and the shares are showing a return then yes you can withdraw it (there may be withdrawal fees - either a fixed amount of 20-50 rand or a small percentage of the transaction 0.05% or something like that)

2) The platform for purchasing shares. I know FNB hosts one, I think 10X does now as well, and there is Easy Equities (who I personally use). Have a look around and just make sure that they are reputable before investing. You must consider platform fees and any other charges. Even something like 1% a year could be enough to make a substantial difference longer term.

3) Diversification is important. S&P500 is quite a diversified investment so you should be all clear if you stick with them. There are other “more diversified” options as well such as the Vanguard total world stock and MSCI total world stock. The more diverse, the lower the overall return but it is almost guaranteed to net positive. If you were to invest in a single company you’re dealing with a much greater risk but the potential for growth could also be good. It’s a whole different ballgame to get into that so I would personally recommend sticking to passively managed exchange traded funds (ETFs).

Anyways sorry for the TMI but I think they are important points. There’s a lot more to it as well but I’m not nearly qualified enough to explain any of it. Best of luck!

 

[stayinfaith]

@resjudicata Look into a Discovery Retirement Optimisor. It’s a Retirement Annuity and a Life cover (separate) but at retirement age, you can convert some of your Life cover into your retirement annuity.

R2mil Life cover is cheaper than to try and save monthly to get to R2mil

 

[vancouverguy]

@stayinfaith It's cheaper because it only pays put if you die in the correct circumstances during the insured time. The more likely that becomes with age, the more expensive the policy.

 

[stayinfaith]

@vancouverguy Except if there’s exclusions based on your health and you don’t commit suicide in the first 2 years - they pay out for any circumstance. If you lie about your health and they find out after, then they won’t pay out. Either way, the Retirement optimisor is to supplement your retirement annuity so if you worry about them not paying out due to “correct circumstances”, that point is null

 

[ninimu]

@mimi_oftwo I too am a fan of the Caleb Hammer Channel, although I don't have the time to watch his hour long videos daily.

Not sure if I can post the link, but there's a YouTube channel called "Money Marx." The dude is a South African vet who recently became a financial advisor.

His videos are gold.

 

[mimi_oftwo]

@ninimu Yeah I listen to Caleb's stuff like a podcast, I've watched a couple of his videos! I'll check it out again

 

[lovewithoutforgiveness]

@mimi_oftwo So for RA's look into doing it yourself by using a platform like 10x, Prescient, Sygnia. This is to reduce your fees. Financial Advisors eat up your investment returns in fees. Especially if its in-house and not independent financial advisors.

Personally we have 2 RA's one with Sygnia and one with Prescient and both have performed very similar. And very low fees.

See this website which explains the fees and the astonishing amount they take from you: https://mymoneytree.co.za

You can do a transfer to your new RA, or just stop your debit orders and leave it be at Old Mutual. I have my original RA with a friend's company who are independent and at least performing very well, which I should transfer, but I've felt too awkward to do.

And also a good way to grow your RA is to reinvest your tax breaks on it. I get about R60k from SARS back each year which I reinvest back into my RA's, snowballing it.

 

[amaze0707]

@mimi_oftwo Look at SATRIX. You can invest directly into their funds as an individual. They have an S&P 500 ETF. You also do not mention a tax free savings account. You can open a Tax Free savings account with SATRIX and have the underlying investment as the SATRIX S&P 500 ETF.

At this stage you can invest R36k per annum in a TFSA. You can do this as a lump sum or monthly but are limited to R500k in your lifetime. You have until monthend to invest for this year. Make yourself conversant with the advantages and limitations of TFSAs.

Bear in mind the advantages of RAs from the tax point of view and also their rules.

You also do not mention whether you rent or own your own accomodation. This is another consideration in your future planning.

Don't be driven by emotion and assess your own risk profile before investing.

Remember the old adage, it's time in the market and not TIMING the market.

Best wishes with your financial future, you have the right mindset.

I am not a financial advisor and this should not be construed as financial advice.

 

[ashvinne]

@mimi_oftwo On investing in to stocks, ETF's, etc. I would recommend Easy Equities! But obviously do your own research on any investments.

 

[mercedesrub40]

@mimi_oftwo I keep my emergency fund in a MoneyMarket account with Standard Bank. It’s currently giving me (I think) 8.7%.

The rest of my excess goes into VOO. I don’t have a retirement annuity. I also don’t have a TFSA in South Africa but it’s worth maximising for a tax-sheltered return.

That’s it.

I manage lifestyle inflation and aggressively pursue chances to earn more money.

 

[prarierose91]

@mercedesrub40 Good advice. For the benefit of the uneducated if investing in TFSA satrix s and p 500 will give similar exposure to VOO..

 

[brooktrout]

@mimi_oftwo I am a financial advisor. I would recommend going and speaking to a few independent advisors in your area. I'm not saying you should or shouldn't increase your RA. I have been doing this for around 20 years. I took out an RA when I started out in the industry, and I will not increase my RA contributions. Stocks can be intimidating for some people. You could look into unit trust options with Ninety one, Allan Gray Nedgroup Investments ect.

 

[christian1991]

@mimi_oftwo please don't invest money in an insurance company....they are expensive.

 

[prarierose91]

@mimi_oftwo Good

 

[mimi_oftwo]

Thanks so much everyone! I have some homework to do, glad to know I'm not completely going down the wrong path!

The Capitec fixed multi deposit account current gives me 8.3% (nominal)

I just checked my car repayment and the settle amount is just over 3k and my monthly repayment is 2k so I might just pay it off today and use some of my savings to have it done