Having money to invest as a student can be hard, this is because the majority of students don’t have a lot of disposable income. Especially in South Africa where the majority of people live in poverty, getting money to invest might be hard. However, investing while you are still a student gives you a huge advantage in the form of compound interest.
Being young is an advantage, the difference between investing at age 20 and 25 is a lot. It is important to starting investing as soon as possible. There are lot of safe investment assets with high returns. For this article, we are going to look at investments that are safe and have low barriers to entry.
Nature of investments
Investing is a long-term game, it’s not a short-term game at all, this is not a get rich quick scheme. You need to have a lot of patience; you should be prepared to wait for at least 5 years before you see significant returns on your investment. Which should not bother you much because you are still a student, 5 years is not a long time to wait.
1. High interest savings account
Most savings account pay interest on your monthly balance, this is a great way to save money while earning interest. Banks with the highest returns on savings accounts are currently African Bank and Tyme Bank. You can start depositing around R800 per month, earning an average of 6.75% interest, you would have R1.8million by the time you are 60.
This doesn’t really sound exciting, but in reality, how many South Africans have R1.8million by the time they are 60? Not a lot, by just sacrificing R800 per month; you are ensuring that you will retire comfortably. The total amount of money you would have contributed is R384 000, the rest comes from interest. You should start saving for retirement as soon as possible, you can also cash out this money any time to start your own business. This is essentially the amount of money you should invest and forget. You can always increase your monthly contributions.
The magic of compound interest starts after 10 years, this is when you start earning more in interest than your total contributions.
2. Fixed deposits
Fixed deposits usually earn way more money in interest than savings accounts. The other disadvantage to savings accounts is that the interest rate can change, interests are fixed for fixed deposits. You need a lot of money to invest in a fixed deposit and earn significant interest. The highest interest rate for a fixed deposit is currently offered by African Bank, with an annual rate of 10.1% or 12.22% on maturity.
You need at least R50 000 to start earning significant money from a fixed deposit. A fixed deposit of R50 000 will earn you an interest of R30 000 from African Bank after 5 years, which is a lot. At that pace, your money would double within 10 years.
3. Stocks
If the two above options don’t excite you then you can try buying stocks. Stocks are very volatile but can make you a lot of money very quickly. There are company stocks that increased by more than 100% in 2020, a lot of people turned to be overnight millionaires from these stocks. However, stocks need you to be very diligent in doing your analysis and research because you can lose the money just as easily.
You can buy and sell company stocks from the JSE, which also allows you to trade indexes. An index is basically the top performing companies or a certain industry, which is considered a lot safer but has returns of 10% on average.
Conclusion
These are the best ways to invest for students in South Africa. These are the safest investments you can make that have guaranteed returns. If you want to make more money then you should consider doing side hustles. Do you have any thoughts or questions? Comment below.
