Another "Investing / shares" thread - please help

[Priapus]

Hey guys,

So, let me give you a little background information, before I go on an ask the actual question.

I'm 24 years old and currently staying with my girlfriend. We rent a 2 bed townhouse in the Roodepoort area. Since moving into our own place this year, we have realized just how expensive it is.

Currently, we both work and earn reasonable salaries.

However, non of us have any savings what so ever. My concerns are that there may be a day when we need access to funds urgently, and forcing us into more debt than we currently have. I, personally hate debt with a passion. So, for the last few months I have been getting myself out of it.

Also, I don't have any real retirement plans - been unsure what the best way to go is. I realized, I need to do something now if I want a decent retirement.

So, what I want to do is start saving for a "Rainy day fund" and a retirement fund, too.

On top of that, once I have cleared all my debt, besides the car (Which I will do by end of next year) - I will have more funds available.

I would like to start investing in shares and learning about it and just general advise. I would like to buy some shares, and if I loose a few pennies, I am sure it will be a learning experience - but, I have no idea where to start with this, or even how to get into it. FNB offers investing in the JSE from your account - but I worry I am literally just throwing away money if I know 0% about shares?

So, the short version:

1. What is the best way to save for a rainy day fund? (Is there a way to avoid tax on the amount saved? )
2. What is a good / best plan for retirement?
3. How do I start with shares? Where can I gain more info on it and where to look online? How do you even buy shares?

I'm sorry if this is long - just wanted to explain as much as I could.

Lastly, I don't have thousands of rands to put away every month - so, the idea is to start small and grow capital. But, not at a stupidly slow rate, where I get like R100 PA back on returns.

I appreciate any help, what so ever.

Thanks ladies and gents.

 

[AlmightyBender]

1) Put this into a Capitec account which earns 4.25% interest with minimal fees. You can't/don't need to avoid tax on this as an emergency fund will never be large enough to be a tax concern. Try putting as much in as possible every month. The goal is three times your monthly salary.
2) Avoid debt as much as possible and make the maximum contribution to your pension fund if your company offers one. The company contribution is the best return you will ever get on any investment. If you don't have one offered through the company then RA's are a choice but I would rather consult a financial advisor before undertaking this.
3) A good place to start would be investing in unit trusts or Satrix ETFs. And then read. And then read some more. Only invest in something you understand. All the major banks have share trading platforms and that is what most people use, or you can go through a broker.

 

[ClintZA]

1) Put this into a Capitec account which earns 4.25% interest with minimal fees. You can't/don't need to avoid tax on this as an emergency fund will never be large enough to be a tax concern. Try putting as much in as possible every month. The goal is three times your monthly salary.

Or another option is to open up a collective investment (unit trust) with one of the asset managers (I see you do mention this in option 3). This will give you access to a range of portfolios. For a rainy day fund you would probably lean towards a conservative portfolio but with it being a recurring contribution there is no harm in going a little more aggressive and getting potentially better returns. Remember if the market takes a dive you'll be buying any new units cheaper and be set to score when the market recovers.

By way of comparison, and in no way advice to choose these particular funds (they were the closest ones at hand):

Std Money Market 6.06% over the last three years (total service charges 0.57%)
Stanlib Balanced Cautious 11.05% over the last three years ((total service charges 1.71%)

2) Avoid debt as much as possible and make the maximum contribution to your pension fund if your company offers one. The company contribution is the best return you will ever get on any investment. If you don't have one offered through the company then RA's are a choice but I would rather consult a financial advisor before undertaking this.

I disagree with automatically looking at maxing your company pension/provident fund contributions. You often have limited portfolio choices on many of them and hence less freedom to choose your own. However, one circumstance under which a company fund is indeed better is if the company matches every rand you contribute with a rand of their own. Many companies now hire on a cost to company basis though so even when they claim to be contributing it is essentially just your money anyway.

I would also recommend that he does not fall into the trap of one of them (him or his GF) saving for retirement for both. This carries the obvious risk of them not still being together at retirement but also means you lose out on the tax free lump sum afforded to one of them at retirement. You should always have separate provision for retirement.

3) A good place to start would be investing in unit trusts or Satrix ETFs. And then read. And then read some more. Only invest in something you understand. All the major banks have share trading platforms and that is what most people use, or you can go through a broker.

I agree that a unit trust is a better option until he has an understanding of the market. This way he can get a basket of shares that are managed by someone with the time and experience to analyse each share added to the basket.

 

[RVQ]

On top of that, once I have cleared all my debt, besides the car (Which I will do by end of next year) - I will have more funds available.

Why not focus of clearing that debt first? Is the interest not that great?

 

[AlmightyBender]

Read this book, takes a couple of hours..
http://myclass.peelschools.org/sec/12/17301/Resources/The Elements of Investing.pdf

Thanks, that is a great introduction and pitched at just the right level. Can now distribute this to all my loved ones. Great post

 

[Priapus]

1) Put this into a Capitec account which earns 4.25% interest with minimal fees. You can't/don't need to avoid tax on this as an emergency fund will never be large enough to be a tax concern. Try putting as much in as possible every month. The goal is three times your monthly salary.
2) Avoid debt as much as possible and make the maximum contribution to your pension fund if your company offers one. The company contribution is the best return you will ever get on any investment. If you don't have one offered through the company then RA's are a choice but I would rather consult a financial advisor before undertaking this.
3) A good place to start would be investing in unit trusts or Satrix ETFs. And then read. And then read some more. Only invest in something you understand. All the major banks have share trading platforms and that is what most people use, or you can go through a broker.

Going to look at Capitec now as an option - thank you.

Why not focus of clearing that debt first? Is the interest not that great?

Because besides my car - I only have my FNB CC that I opened up to move my Game account to.
Reason for this Game's interest was 22% and the FNB CC was 9%. The other monthly bills are just my cell phone contract which ends in July.

So, you see, I am looking start doing my research now - planning, reading etc.
I have already started to clear the debt.
Won't be renewing the cell phone contract, either.

Read this book, takes a couple of hours..
http://myclass.peelschools.org/sec/12/17301/Resources/The Elements of Investing.pdf

Awesome, will download to the laptop and take a read when I get time.

Where can I read more about unit trusts?


Appreciate the help folks!

 

[marco]

Tander. You are still young and can learn the stock market over time. Forget about Money Market peanuts or UT's. UT's management fees are too high and they don't sell in a market crises so you go down to the bottom. Been there. Done that.

My learning started with the 2007 crash. Lost 45% with UT's and a Managed Account. I then decided to do my own investments as I needed to recoup my losses.
I transferred my money to Imara SP Reid brokers. (You can use a broker of your choice) Sent them all the FICA forms and my money was in cash on the JSE earning above average returns for cash.
I then invested in Satrix 40 and Satrix Divi at a click. You will get to know how to do this. It is quite simple.
When you deposit money into your broker account, leave it in cash until the the stock makes a dip then climb in.
You will over time get to know when to get in a stock. NEVER on a peak.
Once you get to know the stock market you will get hooked.
Monthly payments into Satrix will not work as you might be buying at peaks. You have to monitor it for yourself and buy in the dips yourself. That is why you need a broker account.
I stated SATRIX as they are the best ET's for 20+% PA with STX Indi at around 30%. Done on the JSE and not via Fund Managers or on the Satrix Website.

This is how I started and then improved over time as I learned the market to get gains of over 80% PA.

 

[Priapus]

Great advice, thanks guys.

Looked at Capitec - putting in say, R200 a month into the account, only gives you about R100 interest over 12 months. I guess this is one of the best saving accounts out there?

 

[jano]

Great advice, thanks guys.

Looked at Capitec - putting in say, R200 a month into the account, only gives you about R100 interest over 12 months. I guess this is one of the best saving accounts out there?

Interesting bearing investments don't have the greatest returns, and certainly won't beat inflation in the long run (which is important), but you won't lose money during periods of market volatility. Good for an emergency fund, once that's in place you need to look at longer term investments (I like ETFs).

 

[AlmightyBender]

Great advice, thanks guys.

Looked at Capitec - putting in say, R200 a month into the account, only gives you about R100 interest over 12 months. I guess this is one of the best saving accounts out there?

Yes it is the best without any doubt. The point is not to grow the capital here but rather to have a stash ready in case of emergency.

It really depends on how accessable you need the emergency fund to be. I like the option as I have instant access to it with its own debit card. If you are happy to wait a day or two to access the funds then as Clint said a unit trust is also a very good option as you will get much better returns, but you might need to put in more cash per month depending on the service provider. Go have a look at Allen Gray and Coronation websites and see what they require and charge.

Also please please please ignore Marco. I cannot stress this enough.

 

[AlmightyBender]

A good place to start reading about all of these issues is the Personal Finance magazine, which comes out every quarter and is about R30. BUY IT and read it twice! They also have a suppliment every week in the Weekend Argus and I read it religiously. You can also view the weekly articles here: http://www.iol.co.za/business/personal-finance

They even organise monthly seminars on personal finance which are great. Go to those and you can speak to people about these issues directly.

 

[Priapus]

Yes it is the best without any doubt. The point is not to grow the capital here but rather to have a stash ready in case of emergency.

It really depends on how accessable you need the emergency fund to be. I like the option as I have instant access to it with its own debit card. If you are happy to wait a day or two to access the funds then as Clint said a unit trust is also a very good option as you will get much better returns, but you might need to put in more cash per month depending on the service provider. Go have a look at Allen Gray and Coronation websites and see what they require and charge.

Also please please please ignore Marco. I cannot stress this enough.

1. I completely forgot to take into account that the idea with the Capitec account is not to grow the capital really - it's there as an emergency fund. Good point.
2. Why am I ignoring Marco completely?

A good place to start reading about all of these issues is the Personal Finance magazine, which comes out every quarter and is about R30. BUY IT and read it twice! They also have a suppliment every week in the Weekend Argus and I read it religiously. You can also view the weekly articles here: http://www.iol.co.za/business/personal-finance

They even organise monthly seminars on personal finance which are great. Go to those and you can speak to people about these issues directly.

I'll definitely grab a copy - where do I get it from? Local Spar / Checkers, etc?

If inflation is your biggest concern, then you can also look at inflation-linked bonds.
RMB have this etf http://196.30.144.98/FundClients/ETFSA/data/Funds/2256/factsheet.htm

Other ETF's here:
http://www.etfsa.co.za/ETF_factsheet.htm

Yes, inflation is a concern, not too much with the emergency fund - but certainly with any other funds I want to grow. There is little point trying to grow capital, if the inflation is higher than the returns. That's taking very, slow steps backwards, not so?

 

[AlmightyBender]

Might not be at those retails. But you will defs find a copy at a place like CNA or Exclusive Books. They might also be at big retailers like PnP, Checkers, not sure. Never seen it at Spar, but could be there too.

Ignore Marco because he has zero understanding of the concept of investment risk and he gives terrible terrible advice. Just search the forums for some of his previous posts and the replies to them and you will see. The battles between him and DJ are epic

 

[Priapus]

Great, will go look for that today.

Thanks for your help - if I have any more questions, can I come to you? (Via PM's )

 

[SauRoNZA]

Great advice, thanks guys.

Looked at Capitec - putting in say, R200 a month into the account, only gives you about R100 interest over 12 months. I guess this is one of the best saving accounts out there?

The first part of investment is actually having the discipline to invest...instead of pissing the money away on other stuff that brings you nothing in the long run.

Only the secondary worry is then how much money you can make off the money that you managed not to piss away.


1. Not losing money.
2. Stock piling money.
3. Making money from money saved.


Even if you make no interest at all, the entire point of saving money is NOT spending it...if that makes any sense.

Over time you'll grow into the habit of asking yourself "do I really need this" or just cutting costs in general because you start to realise the true value of things and weight them up against one another.

You might see another option that seems more attractive than Capitec...but then you look at the fees involved and the relatively small amounts that you are putting away and you realise that you are losing more in fees than you are making in interest...leaving you with less money than you put in.

Capitec is great in this regard as it costs virtually nothing.

 

[Priapus]

You make excellent points.

Recently, I cut my ADSL from 4MB Uncapped, to 1mb uncapped. As I wash't using it that much and didn't need the extra speed. I also convinced myself I did not need that MacBook Pro FNB are offering for R500 a month. I'm starting to get to the point where I am weighing up the pros and cons on financial decisions.

I'll be opening a Capitec account soon - any extra cash I have at the end of the month, will be going into that account. But, I think it would be smarter to clear the most expensive debt I have, first - then, once done, move that "extra" money into the Capitec account each month?

 

[Anthro]

So some of you have actually made some money through investing.. ?

 

[Priapus]

Lots of people make money through investing. But, the high risk investments give higher rewards and higher risk of loosing money.

 

[AlmightyBender]

You make excellent points.

Recently, I cut my ADSL from 4MB Uncapped, to 1mb uncapped. As I wash't using it that much and didn't need the extra speed. I also convinced myself I did not need that MacBook Pro FNB are offering for R500 a month. I'm starting to get to the point where I am weighing up the pros and cons on financial decisions.

I'll be opening a Capitec account soon - any extra cash I have at the end of the month, will be going into that account. But, I think it would be smarter to clear the most expensive debt I have, first - then, once done, move that "extra" money into the Capitec account each month?

Sort of... the golden rule of investing and personal finance is: "Pay yourself first"
What this means is that you need to put that money away at the start of the month and adjust your spending accordingly. Not the other way round. Takes lots of discipline

Defs concentrate on that expensive debt, but you also need to start your emergency fund now. You never know when that unbudgeted expense is gonna happen. That geyser can pop anytime. Difficult to balance the priorities, but as SauRoNZA said it's more about just doing something about it and having financial plans and goals. As long as you're interested and active in this you will be ok You are young and if you start now with getting educated and getting great habits you can easily escape the rat race and have your wealth work for you rather than you work for wealth.

That reminds me that you should also read "Rich Dad, Poor Dad". Great place to start and has some good philosophies in there. Will teach you the difference between an investment asset and a lifestyle "asset"

 

[SauRoNZA]

You make excellent points.

Recently, I cut my ADSL from 4MB Uncapped, to 1mb uncapped. As I wash't using it that much and didn't need the extra speed. I also convinced myself I did not need that MacBook Pro FNB are offering for R500 a month. I'm starting to get to the point where I am weighing up the pros and cons on financial decisions.

I'll be opening a Capitec account soon - any extra cash I have at the end of the month, will be going into that account. But, I think it would be smarter to clear the most expensive debt I have, first - then, once done, move that "extra" money into the Capitec account each month?

Yes absolutely get rid of all your debt first, then start investing.

You can't run them in parallel because your debt will lose you more money than you are making.