Using a wide variety of investment vehicles can help beat inflation
Stokvels need to diversify their portfolios to maximise returns
While stokvels have existed for decades, there is a lack of diversity on investment vehicles in which savings can be invested for the long term.
According to experts, instead of withdrawing funds for short-term goals, stokvels should consider diversifying and looking at a wide variety of investment vehicles that could go a long way in bringing higher returns.
“Stokvel concepts with appropriate investment models may hold the key to alleviating poverty and extending equal access to economic ownership and capital accumulation in South Africa,” said head of stokvels and group savings at FNB Sifiso Nkosi.
“Most people have been using stokvels for informal savings over the years, frequently depleting their savings around the December holidays, before going on spending binges during the festive season and starting over the following year.
“Instead of withdrawing all funds for short-term goals… stokvels should consider diversifying their portfolios using a wide variety of investment vehicles that can yield returns that surpass inflation. The annual inflation rate in South Africa was 7.2% in December 2022, down from 7.4% in November, but still above the upper limit of the South African Reserve Bank’s 3% to 6% target range,” Nkosi said.
He said lack of investment vehicles means stokvels are missing an opportunity to grow their investments and their savings could potentially yield a higher rate of return from other long-term investment solutions.
“Stokvel members can improve their individual savings and investing plans by diversifying the stokvel payouts and using the principles of collective saving (discipline, accountability and belonging to a community of like-minded people).
“The advantage is that stokvel members have an all-encompassing investing strategy that meets their demands in the short and long term rather than being overly involved in the short-term investments,” Nkosi said.
Product head for the bank’s wealth and investment solutions Samukelo Zwane said the “risk of being unduly focused on one asset class is decreased by diversifying the underlying investment in a stokvel”.
“As a result, when one asset class underperforms, which is frequently the case, another asset class may outperform, which lessens the impact of the underperformance of one asset class.
“Our desire to increase the underlying investment in stokvel solutions stems from the fact that diversification is at the heart of the investing concepts we promote to our clients. In the future, we see our clients investing in cash, unit trusts, direct shares and exchange-traded funds,” Zwane said.
How stokvels can reinvest earnings into other long-term vehicles:
Zwane said stokvel members can use their dividends to fund their tax-free savings accounts as part of long-term retirement planning.
“Members who reinvest the earnings from their stokvel increase the compounding power of returns. If you invest in cash items, the proceeds could be interest; if you invest in shares or unit trusts, they could be dividends.
“Members that invest grow their overall investment pot, allowing the investor to earn returns on a greater capital basis from which they can earn larger returns on their investment. Since compound returns have a greater impact on long-term investments made by clients, FNB encourages reinvestment for these clients,” said Zwane.
“It’s critical for financial institutions to offer long-term investment options for stokvels to allow groups that same investment continuum available to individuals or businesses. This will ensure that stokvels can hold a variety of investment products, ranging from demand (short-term) to longer-term investment solutions such as bonds, unit trusts and shares.”
Nkosi said stokvels that hold their savings with the bank can tap into long-term investment vehicles choosing unit trusts and share zero which gives exposure to local and global companies to invest in.
Would you like to comment on this article?
Register (it's quick and free) or sign in now.
Please read our Comment Policy before commenting.