Where to invest...?

Now we get to the interesting stuff, where do I invest spare cash? The answer to this question will be different for most individuals because their circumstances differ and that is why it is good to consult a professional, sooner rather than later (especially with larger investment amounts).


The problem you face when going to an investment advisor (as I mentioned previously) is that they will either charge you for advice, or show you the door because they only work with BIG money.

Now that is where everything starts going wrong!


Let’s deviate a bit and indulge me in a little bit of a moan.


If you ask anybody what you should do to get rid of your party hangover they will tell you to start by drinking a pain pill. If you ask anybody what eating health means they will tell you that you have to include fruit and vegetables in a balanced diet. And so we can carry on with the general knowledge, BUT, ask people what you must do with spare cash and their eyes will glaze over and you will get replies like, spend it, invest it, put it in your bond, keep it in cash, buy US$ etc.

What I am getting at is that there should be a standard answer that everybody should give you based on the “laws of finances”. A five year old should give the following answer:

• If you have debt, re-pay it.
• If you want to use it in the next 12 months and you have no debt, put it in your bank account and earn interest.
• If you have no debt and don’t want to use it in the next couple of years, invest it in shares.
  

Why go and pay somebody to tell you this?! I am not saying that it doesn’t get more complicated than this but these are the basic rules.

OK, let’s get back to the topic of investments. Let’s use and example one of my friends gave me the other day and break it down into a potential investment plan:

Joe Soap has no debt and R20 000 in a Money Market account. He doesn’t want to use it for the next 10 years but want it accessible if something unforeseen should happen. Let’s break it up:

• No debt so rule number one doesn’t apply.
• Keep it in the Money Market (cash)?
• Buy property?
• Buy other investments that will pay interest like Government Bonds?
• Buy Gold?
• Buy US$?
• Buy shares?
  

Not suggested

• Money Market, cash, government bonds and other interest paying investments because these instruments should be used for the short term. They are safe but taxable and inflation will erode all the returns over the longer term.
• Property require much more than R20 000, even for a deposit.
• Gold is very speculative and high risk.
• Buying a currency like US$ is once again a speculative investment and closer to gambling than investing.
  

Suggested: Shares because,

• Currently the share market is relatively cheap.
• This is a longer term investment and shares have proved itself as the best performing investment over the longer period.
• Returns will be largely tax free.
• Shares can be sold with the click of a button if cash is needed.
• Shares on average outperform inflation over the longer period, unlike cash.
  

If Joe Soap does decide to invest his R20 000 in shares, I would urge him to keep it simple and consider investing into what is known as the SATRIX range of shares on the Johannesburg Stock Exchange.

Time is running out so I will give you the details of what SATRIX is in my next posting.

Thanks for your feedback, keep it up!