Sun. Oct 20th, 2019

DIY financial investing: Hole-in-one

This is the next instalment in a series of DIY approaches to investing one’s own money.

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Gary Player is
seen as one of the greatest golfers of all time. His philosophy is one of hard
work, healthy living and staying fit. Off the course his famous investment
advice is equally balanced: Keep property, shares and cash in your portfolio.
Play it safe.

Warning!

People, however, love a hole-in-one. And people love to tell stories of how someone became rich overnight. There are, unfortunately, many more untold stories of precious savings which disappeared like morning mist.

The truth of the
matter is this: good investment is about patiently doing the right thing for a
long time. Be in it for the long game, like Mayweather. Always be aware of the
power of the media and how well they understand the psychology of someone who
works hard and wants a little extra for free.

Even well-respected news sites may have links from advertisers that lead to all kinds of wild and wonderful ways of getting rich quickly. Hear ye, hear ye! Beware the bitcoin, beware the forex trade, beware the wonderful computer programs that help you pick shares, beware of very good interest rates offered by companies you have never heard of.

If it sounds too good to be true, then it probably is exactly that.

Fixed deposit

All the major banks offer 8% or more on some fixed deposits. This is comfortably above inflation, and can truly be seen as an investment.

Keep in mind that these funds will not be available for some time, so keep something on the side for the unforeseen. An intermediate option, like a 32-day notice account, is also an option.

You might use the overdraft facility on your credit card for an emergency and then clear it within 32 days. But be careful not to borrow money at a higher rate while investing at a lower rate for any significant amount of time.

If you invest R 20 000 at an interest rate of 8,5% per year, without withdrawing the interest, then you have more than R 30 000 after 5 years. R 20 000 x 1,085 x 1,085 x 1,085 x 1,085 x 1,085 = R 30 073.) This sounds wonderful, but remember the effect of inflation.

To determine what it would be in today’s money, you should rather subtract inflation from the interest rate. If we estimate that inflation will be 4,5% then the amount becomes R 24 333. ( R20 000 x 1,04 x 1,04 x 1,04 x 1,04 x 1,04 = R 24 333.) In other words, after 5 years you would have about R 30 000, and you will be able to do the same as what you can do today with about R 24 333.

Government
bonds

An alternative is
to invest in government bonds. By doing this you are lending money to the
government, rather than lending it to your bank, but for all practical purposes
it’s the same. So shop around between banks, but also look at
rsaretailbonds.gov.za, where you can often get better interest rates on smaller
amounts.

Personally, I think that this is a wonderful initiative from our government to help us save.

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