06 April 2023
Time in the market is what every investor needs to maximise their returns, which is why starting to invest as soon as you can is first prize to truly reap those rewards. So, what investment opportunities do experts recommend taking advantage of in your 20s and 30s?
There is no better moment to get your money in the market and give it the earliest and best opportunity to earn . “The earlier you start to invest, the better, because the longer you have to be invested in the market, the longer you have to be able to create and grow your wealth,” says Sibabalwe Mgijima, Business Development Manager at Glacier by Sanlam. “I highly recommend starting to get into the habit of investing, even with as little as you can, from as early as you can – ideally as soon as you get that first salary,” she stresses.
Where to start
Build your emergency fund
Sibabalwe says emergency savings is a great place to start to take advantage of investment opportunities, while ticking an important box in your comprehensive financial plan.
“You could use something like a unit trust fund investment, which offers the kind of flexibility you’d be looking for with emergency savings. A unit trust fund enables you to invest in different asset classes and to enjoy growth as a result,” says Sibabalwe. “Considering that you are saving for an emergency and you need a minimum amount of capital to remain secure, you don’t necessarily want to invest too aggressively with a high equity allocation, but there are more cautious portfolios you can look at.”
Start your RA
A retirement annuity (RA) is a retirement savings vehicle worth taking advantage of if you are not yet a retirement fund member or even for additional retirement savings. “With an RA, where the minimum retirement age is 55, you have about 30 years of investment time,” says Sibabalwe. That’s plenty of time for your money to gain the right exposure, and grow. Sibabalwe adds that, because of the longer time frame, you can afford to invest in a more aggressive type of portfolio. “Riskier portfolios are known to be able to give better returns in the long run, so being invested in the market over a 30-year period allows you to invest in those riskier , and stand a good chance of earning better returns for retirement planning,” she notes.
Take advantage of tax efficiency
Besides time in the market, an approved retirement savings fund also brings tax efficiency into your portfolio. According to Section 11F of the Income Tax Act, you are allowed a tax deduction for your retirement contributions.
Another way to enjoy tax efficiency would be to open a tax-free savings account. “At Glacier, a Section 12T tax-free investment is offered in a unit trust fund, the Glacier Tax Free Investment Plan. This allows customisation by choosing from a wide range of well-researched investment funds, while also allowing you to access your capital at short notice,” says Sibabalwe. If you’re in your 20s or 30s and earning income locally, you would have a R23 800 annual local interest tax exemption, and R40 000 annual exclusion for capital gains tax (CGT). Interest earned in a unit trust fund investment could enjoy this local interest exemption if there is no other local interest accruing to you in a tax year.
If you’ve already taken advantage of the tax exemptions, either because of local interest earned in a unit trust fund or elsewhere, you could consider a tax-free savings account, where there is no tax applicable on capital gains or interest. “The only downfall is that there’s a R500 000 lifetime contribution limit,” cautions Sibabalwe. “So, it isn’t something that you’d necessarily want to use as an emergency fund, or for purchasing a car, for example. You are probably going to withdraw from it at some point and therefore decrease that lifetime limit, as any repayment into the investment will be seen as tallying against the contribution limit. A tax-free investment is more suited for longer term savings, like for your children’s education.”
Partnering for holistic planning
The role a financial adviser plays in maximising your returns is critical. “With a portfolio that is well thought out by someone who has the knowledge and the time to consider these things, it allows you to be able to get the best value for your money,” explains Sibabalwe.
Don’t make these mistakes
You know the benefits of starting to invest early, diversifying your investment portfolio and taking advice from an expert about the best investment choices for your needs. But what about some common mistakes Sibabalwe sees investors make?
Playing it safe with a stock-standard savings account
“Thinking that you can put your money into your personal savings account, and it being your only form of saving, is a big investing mistake,” Sibabalwe says. Besides the fact that it’s unlikely to enjoy substantial growth, she adds that the ease of access to your capital can trick you into thinking you need to use it the moment any unprecedented but non-essential expense sneaks up on you.
Sticking to the same contribution
“Sometimes we start saving, but we keep it there; that R100 stays R100 for 20 years,” Sibabalwe illustrates. “Yet our salaries have been increasing by at least 5-6% on an annual basis.” It’s important to adjust your investment contributions from the moment your regular income increases, not only so that you can get in the habit of putting away more, but so that your rands can sustain their purchasing power.
Enlist a one-stop shop
For every age, life stage, local or offshore needs, or appetite for risk, investing through Glacier’s investment platform with the help of your financial adviser offers you unrivalled choice and flexibility to meet your investment needs. “What makes it even better is that it enables your adviser to provide a combination of solutions to suit your unique needs,” adds Sibabalwe. This is particularly valuable if you start taking advantage of investment opportunities in your 20s or 30s, because your financial needs will evolve as your goals change.
Using the Glacier investment platform, your adviser has a simple way to access the widest range of leading local and international investment funds, all in one place, to customise your portfolio for ultimate personalisation – no matter your life stage or needs.
Ask your financial adviser why you’re not with Glacier by Sanlam
