The financial shocks of the past few months have provided a glaring reminder of the critical importance of saving.
“Many people have found themselves unprepared for sudden financial shocks as the economy effectively shut down,” says Marthinus van der Nest, head of Amplify Investment Partners. “For many South Africans that are drowning in financial worries, savings may not be high on their list of priorities.”
However, Amplify believes that now is the perfect time to create or review your savings strategy to make sure you can weather future storms and be in a position to enjoy the sunny days which will start to emerge as the economy gets restarted.
“National Savings Month provides the perfect impetus to reflect on our savings strategies, to start looking at savings options, and taking the first steps to increase our savings,” says Van der Nest.
“The first step is to make sure you are paying the bills and not incurring interest on your debt. This means keeping track of what you earn and what you spend and differentiating between necessary and non-essential spending.”
The next step is to adjust your spending to prioritise and increase debt repayments where possible and reduce your overall debt burden. “Impose a strict monthly minimum level of savings going directly towards reducing any debt. It is only once your debt is at a manageable level that savings can be used for their real purpose – to grow your money for the future and to provide a cushion against possible future shocks,” says Van der Nest.
With interest rates at record lows, a bank or money market account is not the optimal savings mechanism at present.
For most savers, unit trusts offer a wide choice. They are accessible as they are relatively low cost and diversified as they are composed of a basket of equities, bonds and money market instruments.
Selections need to be based on personal goals, relative risk appetite and cost. As savings levels increase, investors can increasingly diversify their investment options and their risk exposure and can include a range of increasingly complex investment options, including unit trusts and hedge funds.
With over 1 500 unit trusts in South Africa – significantly more than actual shares available for investment on the JSE – and a large and growing number of asset managers, there is no shortage of choice. But make sure you choose a fund manager capable of managing risk – even unexpected risks like Covid-19.
Amplify Investment Partners has a relatively small bouquet of funds with a large investible universe, giving it more opportunity to exploit market opportunities not available to larger managers. They are agile and responsive to investment opportunities and can react quickly to unexpected risks.
“This has proven critical during volatility such as what markets experienced in the past few months, and the value is reflected in our relative outperformance during this period,” says Van der Nest.
Amplify believes that saving for the future includes leaving a better world for future generations and is firmly of the opinion that that investment priorities go hand in hand with environmental and social priorities.
“Whether you are saving or investing, you want to make sure you continue to protect your wealth and make positive returns in an extremely uncertain investment environment. You also want to make a positive impact, and we believe in doing both,” says Van der Nest. “For us, saving for the future means leaving a better world for future generations. We hope that savings month represents a new start in preparing for a better future.”