Starting an investment portfolio can be quite a daunting experience in the times we are living in. We are constantly bombarded with information on AI, crypto, gold, property, etc. Similarly to how we approach our health and fitness, sometimes the best strategy is taking a step back and getting back to basics.
Women are more likely not to save or invest (44% v 35%), and less likely to invest in growth assets (15% v 23%), or at least split their savings between cash and growth assets (12% v 16%). They are also 50% more likely to cash in their retirement savings when leaving their employer.
10X Investments – South African Retirement Reality Report 2022.
The Principles Of Investing
When starting your investment portfolio, there are a few principles to bear in mind.
Focus on time in the market – not timing the market.
The longer your investment timeline is, the more you enjoy the power of compound interest. Start early. This will take a lot of pressure off later in life. The earlier you start, the less you need to invest per month.
Work with a professional from the start.
Working with a wealth manager as you start building your wealth will ensure you optimise suitable products and investment strategies from day one. Involving an independent person helps to ensure you can set clear short- and longer-term goals – and stick to them. You will save yourself time and money by avoiding a few pitfalls – or investing in products that are very difficult to change later on due to penalty structures. A wealth manager will also be able to assist with all the aspects around creating and growing your wealth, for example ensuring that you have an up-to-date will and that you are sufficiently insured in the case of your death.
Start off by optimising your annual tax benefits:
This can be done firstly by investing in a tax-free investment. You are allowed to save up to R36 000 p.a. in this vehicle, and R500 000 in your lifetime. It will therefore take you around 14 years to reach the cap of this investment. Ideally, you can then still leave the investment to compound, leaving you with a significant lump sum – which is 100% tax-free when you access it.
Secondly, you can optimise your retirement funds. This can consist of a combination of your retirement fund at work should your employer offer one (a pension or provident fund), as well as a retirement annuity in your private capacity. You are allowed to invest up to 27.5% of your taxable income and deduct contributions from your total income on an annual basis – up to a maximum of R350 000 per annum. There is an additional benefit should you invest more than your 27.5% deductible benefit. The additional contributions get pooled in a “disallowed contributions” fund – which will create an additional tax benefit at retirement. A very underutilised benefit.
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Tax-free retirement
By combining the two strategies above you can essentially create a tax-free retirement for a few years!
- Ensuring your asset allocation/investment strategy is suitable. One of the biggest mistakes many investors make is being invested in the wrong portfolios for their age and profiles. Either being invested too conservatively – or not diversified sufficiently. Following a strategy with well-diversified asset classes (cash, bonds, property, local and offshore equity exposure) is essential to ensure your portfolio will remain resilient through different economic cycles. Having sufficient exposure to growth assets (equity exposure) is also imperative, ensuring you are earning above-inflation returns.
- Ensure you have an emergency fund in place. If there is one thing we have all learned in the past three years, unexpected things happen! Should it be a pandemic, a war, all-time high inflation and plummeting rand. We need to plan for the short term as well – ensuring we won’t dip into our future savings and hurt our future wealth for retirement. Keep in mind only 6% of South Africans can retire comfortably – so we need to change something!
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Structure an investment with a short-term strategy that can be used for emergencies, as well as holidays or other unforeseen short-term expenses. I would make this a priority in my holistic life planning, ensuring you are taking care of your wealth as well. This is ultimately the component in your life that makes everything else possible.
Meet Our Expert
Elke Brink, Wealth Advisor
In 2015 I was the youngest individual to obtain the CFP qualification in SA at the age of 22. I have since practised wealth advice and specialize in the high nett worth space. I form part of a team of 8 directors, and we have two PSG offices (Stellenbosch and Pretoria). We focus on creating an optimal wealth-planning solution for individuals and corporates.
I have a great passion for this industry as there are so many variables on a weekly basis in the markets. Every individual’s financial goals and story also look different. It can range from a young individual starting their saving journey, to a senior individual stepping out of the workspace and into retirement. Only around 6% of South Africans are in a space where they can retire comfortably. Helping individuals create this wealth and plan for the future is something I love.
If I’m not working I enjoy being in the mountains. I love trail running and see the mountains as a wonderful mental escape. When it’s time to relax I enjoy exploring the local wine farms around.
