American writer, Mark Twain, famously said: “The secret of getting ahead is getting started”, which is a fitting philosophy for any do-it-yourself (DIY) investor.
The key to successful investing isn’t only about picking the right stock or ETF – it’s about creating a disciplined savings habit that turns small amounts into meaningful investment capital over time.
While many South Africans put off investing until they have a significant lump sum ready to deploy into the market, the most effective approach is to carve out a portion of your monthly income to grow your investments consistently.
Follow these saving and investment tips to start your journey to financial prosperity today!
Don’t wait
Let go of the idea that you first need to build up capital before you invest. For as little as R25, you can invest on the Clarity platform today.
For the price of a weekly cappuccino, you can start building an investment portfolio, and the sooner you start on your investment journey, the better!
Start by identifying areas where you can further reduce frivolous spending and allocate that money for saving for your investment portfolio.
Plan your savings
The next step is determining your goals and when you want to achieve them. Categorise your goals as either short (1-3 years), medium (4-7 years) or long-term (7-10 years).
Once you have identified your goals, choose the investment option best suited to achieve those goals in the timeframe you have set.
Interest-bearing savings accounts, money market funds or fixed or notice deposits are ideal options for short-term savings for a holiday, a deposit on a car, or an emergency fund. These investments are less volatile and provide consistent returns.
Diversified exchange-traded funds (ETFs) with moderate risk profiles like the Satrix MSCI World ETF (STXWDM-JSE) or the S&P 500 (VOO-NASQ) or tax-free savings accounts (TFSAs) offer the potential for better returns over the medium term in exchange for locking up your capital for longer periods.
Investments that require a longer-term horizon include high-growth ETFs, like the Schwab U.S. Large-Cap Growth ETF (SCHG-NASQ), retirement annuities (RAs), and offshore investments to hedge against rand weakness and access broader markets are the ideal options.
Find budgeting balance
In a world where everything competes for your money, ringfencing a portion of your monthly disposable income is an important step to start saving for investment.
Create a separate pot of money that is specifically earmarked to get your share of markets.
This monthly amount should fall outside your monthly contributions to a retirement fund, emergency fund, and other discretionary savings, like an education or holiday fund.
A useful guideline to follow is the 50/30/20 rule – a balanced budgeting guideline which suggests spending 50% of your after-tax income on needs, 30% on wants, and 20% on savings and investment.
It is best to automate a transfer into your trading account each month, even if it’s just R500.
Invest windfalls
Everyone welcomes windfalls like bonuses, inheritances or tax refunds, but too many of us spend everything on gifts, spoils or upgrading our lifestyles.
Before investing, consider paying off debt, especially outstanding amounts with the highest interest rates, like personal loans or credit cards.
Rather than spending what’s left, apply the 50/50 rule – use half to treat yourself and invest the other half.
Putting a lump sum into your TFSA, RA, or a diversified ETF portfolio can boost your returns and fast-track your journey to financial independence.
Never too late, or too early
Whether you’ve delayed your decision to start saving towards investing, or have just started earning income, the best time to start was yesterday.
The second-best time?
Right now.
By ringfencing your savings, using smart short-term instruments, treating windfalls wisely, and channelling those funds into the right investments, you’ll get a head start on everyone who is still waiting to get started.
