Investing can seem scary, especially if you are a beginner, a lot of people have heard about investing in real estate or companies but have no idea about the depth of investment instruments that are there in the market. These are some of the best ways to invest money in South Africa.
Many people shy away from the subject of investing because they think it is very complicated, they imagine men wearing suits sitting in front of many computers. Investing is not complicated at all, just about anyone with a few thousand Rands or even hundreds can do it.
Set Investment goals
It’s very important to set an investment goal. Investing is to put money in financial instruments, property or ventures with the hopes of making profit. There are different kinds of investment assets, which are aimed at different kinds of investors.
When setting investment goals; it’s important to consider the timeframe on which you plan to invest and the returns you expect to make. Let’s say you have R100 000, you might decide to invest the money for 5 years, while seeking a return of 10%. This will help you filter out the many different kinds of investment assets.
Here are some of the things to consider when setting an investment goal.
1. Returns
How much do you expect to make off your investment? Realistically speaking, the highest you can go is 10% per year on most assets. A very good rate of return for an investor is 15% but that requires a lot of action from your side, which most beginners are not familiar with.
It’s important to bear in mind that higher returns corelate with higher risks.
2. Level of risk
Not all investment classes are equal, some are riskier than others. Are you willing to invest in an instrument that can eat up most if not all of your money should things go wrong?
People who are investing for retirement, children’s education and a stable future in general should not go for risky investments. Riskier investments compensate for their risk by giving out high returns.
If you want to safeguard your principal amount at all cost then you can choose less riskier investments. They come with lesser yields but can be a stable way to generate income.
3. Investment period
The investment period is the time you are willing to spend from the day of investment to the day of maturity. How long are you willing to invest? There are short term investments and long-term investments. As you have already guessed, long-term investments have better returns.
4. Income type
Do you want to make a fixed income off your investment or do you want to allow your investment to fluctuate? It is very possible to invest in an asset that will pay you a fixed income at different intervals within the year. It’s also possible to invest in assets that are not predictable, these assets may pay more on certain intervals than others depending on the performance of the investment.
This criterion will help you choose between the investment options that are listed below. Choose the investment option that is best for you and your money.
These are the best ways to invest money in South Africa.
1. Government bonds
Government bonds are the safest of all the asset classes. The government sometimes raises money from the public, this money is used to fund infrastructure development and other government projects.
Investors lend money to the government and the government pays this money back with interest. Government bonds are the safest because the government is not likely to ever default on its debt.
The most popular bond is currently the Retail Savings Bond. You need a minimum of R1 000 to invest in this bond but may not go over R5million. The longest investment period for this bond is 10 years and the shortest is 2 years. With this option you will earn interest twice per year or every six months. The interest rate for the Retail Savings Bond lies anywhere between 3% and 7%.
2. Corporate bonds
Corporate bonds are similar to government bonds, the only difference is that the issuer is a corporate entity. Companies issue bonds to raise money for their projects and day to day expenses. This is better than selling equity because selling equity means that they lose some control of the company.
Corporate bonds are slightly less safe than government bonds but are still a very safe option. There are corporate bonds that are much safer than others, the safest are known as “Triple A” bonds and the riskiest are known as junk bonds. They require just a bit of due diligence on your side, it’s always better to invest with a reputable company.
Buying corporate bonds is safer than buying shares because bond investors are paid first in the event of the company going bankrupt. Most corporate bonds are insured by reputable banks.
3. Mutual Funds
A mutual fund is an investment vehicle that pools money from a lot of different investors. The purpose of mutual funds is to raise enough capital to invest in different securities so that risk can be spread out.
The mutual fund is managed by a portfolio manager, the manager decides on which securities to buy on behalf of the investors. This is very attractive for a lot of investors because you don’t have to analyse hundreds of securities and pick the best one, fund managers with extensive experience do this on your behalf.
Mutual funds invest in different securities, from equities to bonds. The fund usually invests in over hundred securities, this makes it very safe. If the fund has many securities then it won’t get hurt by the bad performance of a few securities. Individual investors can get very hurt from their securities as they usually invest in far fewer securities.
4. Stocks
When you buy stocks, you own a part of the company’s assets. If the company does well, you may receive periodic dividends and/or be able to sell your stock at a profit. If the company does poorly, the stock price may fall and you could lose some or all of the money you invested.
Stocks can increase by more than 100%, they require you to monitor them consistently. It’s always good to buy stocks on companies that you know a bit of information about, companies like Tesla and Apple.
5. Money markets
A money market is a short-term investment, it is based on investing in short-term debt. Money markets accounts are similar to savings accounts but offer higher interest rates than savings account. They are not safe from inflation but are insured by the bank.
Conclusion
These are some of the best ways to invest money in South Africa. These investments were chosen for their safety and returns. Do you have any thoughts or questions? Comment below.
