It’s never too early (or late) to start investing
Whether you’re in your twenties, a student, or forging your way to success with a first job, the chances are that saving and investing for the future aren’t foremost in your mind.
But the fact is, the earlier you start, the better. We spoke to Mpho Ledwaba, Head of Marketing at the JSE, about the difference between saving and investing, and why it’s important to take an interest in your financial future.
Most people confuse investing and saving. Would you mind clarifying the difference?
There are various ways of saving money: buying items when they are discounted is a way of saving. However, investing refers to what you do with the money you set aside. Instead of leaving it in a jar or in your normal transaction bank account, you invest when you use it to buy shares or investment products.
In your view, is it true that Millennials don’t save as much as the generations that preceded them? If so, why do you think this is?
South Africa has a relatively low savings and investment culture. Young people of every generation tend to find it difficult to prioritize saving, especially for retirement. It can be strange for a millennial to start thinking about saving for retirement when they are in their early twenties and still getting to grips with the reality of their first job. Many young people also need to pay off student loans before they can begin saving, and this has become harder to do as the cost of tertiary education increases.
In a South African context, who should consider investing? What do you already need to have in place, before you can start investing?
In order for our economy to grow, everyone needs to take action in their personal finances and take the first steps towards investing – it is never too early or too late. People need to let go of the misconception that one needs lots of money to start investing on the JSE for example. Many people do not know that they can start investing on the JSE through a tax-free savings account (TFSA) from as little as R300 per month.
What kinds of investment opportunities are there for young professionals in South Africa, right now?
Young professionals have the same investment opportunities and products to choose from as any South African investing on the JSE. However, younger people do have the advantage, in that they can invest over a longer period, especially if they are investing for retirement. Young people who have time on their side can also tolerate higher levels of risk than people closer to retirement.
How does one start building an investment portfolio? What are the first steps?
For first-time investors, a product called an Exchange Traded Fund (ETF) is an easy and affordable way to get started. ETFs allow you to invest in a selection of shares by tracking a stock market index. So what does this mean? An index combines the share prices of a group of shares to show how they are performing overall. This is less risky, because if one or two companies in the Top 40 do very badly in the short term, and their share prices fall, there will likely to be other companies that are doing well. This is known as diversification – you could also think of it as ‘not putting all of your eggs in one basket’.
What are some of the advantages of investing?
Investing allows your money to increase in value over time – to earn a return. The returns generated through investing are generally higher, especially over a longer period, than the interest you would earn if you simply leave your money in a savings account at your bank.