The best monthly investment plan for your 500 bucks

By Sydney Sekese, CFP^® professional and FPI 2016 Media Award Winner

This article comes at the right time considering that July is regarded as a savings month. A leading financial services company releases annual results of their Savings and Investments Monitor each year. This survey consists of interviews amongst working South Africans living in major metropolitan areas, and examines levels of savings and investments as well as their attitude to finances in general and savings in particular. An interesting revelation this year is that 67% of income is spent on living expenses and instant gratification or consumption. This is higher than in the July 2017 survey indicating a consumption level of 62%. This implies that there is less or no allocation towards savings or investing.

Back to basics

R500 may look like a very small amount to consider investing regularly; it is the Cents that make the Rands, so every penny counts towards reaching your financial goals. You don’t need a lot of money to get started as an investor. This regular R500 investment should form part of a holistic financial plan to meet your short, medium and long term goals.

This talks to a properly drawn household budget. Most first-time investors give up on the disciplined monthly investment commitment because they have failed to draw up a budget. The temptation to pre-maturely access the invested funds usually comes as a result of an absence of a dynamic household budget.
Having a dynamic budget, which changes with changing circumstances, assists in meeting investment objectives and goals. Furthermore, meeting these objectives requires a properly compiled investment strategy which is designed according to your risk profile.

More on risk profile

Your risk profile is the first step in taking control of your investment journey. Know your risk profile, and then you can focus on the investment options that are likely to best suit you. Lower-risk investment options usually provide relatively consistent, but lower, returns over time. Pursuing higher long-term returns may see you invest in more volatile options, and accept a greater risk of negative returns in some years.

The risk profile is not a substitute for financial advice. If you’d like more information about investment risk and return, we recommend you seek financial advice. For example, a Certified Financial Planner will take into account your unique financial needs and objectives, and help you to choose the investments that best suit you.

Based on your responses, an experienced professional Certified Financial Planner can determine your risk appetite and classify you as a conservative, assertive or an aggressive investor. The promise of high returns can seduce the most conservative of investors. Why settle for the safe 8 to 9 per cent offered by a bank fixed deposit when you can earn almost double from other investments, are possible thought provoking considerations.

So, what options are there for my available 500 bucks?
There is a plethora of investment opportunities available for the surplus 500 bucks you might have each month. The most practical avenue is that of Unit Trusts, commonly known as Collective Investments. There are close to 1000 unit trusts available in South Africa; to meet every investment objective, style and preference.
You can expect to restore and maintain the purchasing power of your investments with these types of investment instruments over a long-term period. The likely returns range from outperforming inflation by between 3 and 7 per cent for the conservative profile and aggressive profile respectively.

To achieve these results, you have to be disciplined and prepared to invest the 500 bucks each month for a period of not less than 3 years. Unit trust Funds are an extremely flexible type of investment, allowing you to withdraw money or put extra when you want to.

We are what we are because of decisions and plans we made in the past. So, our paths should be carefully planned as they will determine the shape of our future. It’s never too late or too soon to start putting that extra 500 bucks to good use. Despite the economic dispensation we are currently experiencing, it becomes imperative to prioritize your financial situation by firstly paying off your short term debt, saving towards an emergency fund and allocating funds towards long term goals like retirement.