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Investing Trends In South Africa

This piece seeks to explore the latest investing trends in South Africa with a view to providing information on some of the risks and information on how to get the best odds of success.

Jeff Broth

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Africa is turning out to be a magnet for foreign investors and the trend won’t slow down in the short to medium terms.

The investment environment in Europe and America has reached a point of maturity and investors are looking to emerging markets to catch the next wave of investment opportunities with massive ROI.

At the start of the decade, many investors flocked to the BRIC nations in the expectation that they’ll become the next economic powerhouses by 2050. However, South Africa has shown strong signs of an economic revolution that could surprise investors globally. Now, smart investors are talking about investing in BRICS, which now include Brazil, Russia, India, China, and South Africa. The emerging markets of Africa and Asia-Pacific are turning out to be the next destination for the discerning investor.

Related: Trends In Investing For Entrepreneurs In South Africa

Investing trends in South Africa

1. Commodities

It is practically impossible to talk about investing trends in South Africa without talking about its vibrant mining sector. Idan Levitov from anyoption notes that “South Africa is the perfect destination for investors who want to invest in a vibrant commodities or commodities derivatives market”. South Africa’s economic policymakers have come to a realisation that commodities could be valuable building blocks for creating a global economy and they are working hard to provide an enabling environment for trading both hard and soft commodities.

In case you are skeptical about trading commodities in South Africa, it might interest you to know that the U.S. Geological Survey estimates that South Africa holds about 50% of the world’s gold resources. Apart from gold, South Africa is also home to a number of precious metals such as diamonds, platinum, and silver among others.

2. Real estate

The real estate market in South Africa has taken off and many international real estate firms have found the South African real estate market to be lucrative. South Africa is now home to malls, skyscrapers, business districts, hotels and apartment complexes on par with what it available in Europe and the Americas. Interestingly, many global firms with strong focus on real estate developments are using South Africa as a launch pad to the rest of Africa. Johannesburg, Cape Town, Durban, and Soweto are some of the biggest real estate markets in the country.

3. Equities

The Johannesburg Stock Exchange currently tops the list for investments in the capital markets among emerging market equities. The JSE is a 127-year exchange that keeps booking gains even when the general economic outlook of the country looks bleak. Interestingly, the JSE has impressive upside potential ahead and Dominic Bunning, emerging markets FX strategist at HSBC notes that “South Africa still has a lot of challenges and there is the Fitch rating decision to come this month, but they haven’t been downgraded … cyclically there is still room for the rand to do a bit better.”

Related: Investing In Your Future

Risks to investing in South Africa

Investing in South Africa can be richly rewarding; yet, the country has some unique issues that could raise the risk exposure for investors. One of the major risks to investing in South Africa is nationalisation and expropriation activities by the South African government. For instance, there’s a pending amendment to the 2002 Mineral and Petroleum Resources Development Act. The change if passed into law would allow the South African government to obtain a 20% stake in new oil and gas businesses and the government can buy an undisclosed amount of stake at an “agreed price”.

Robert Besseling, Executive Director at EXX Africa, a consultancy, notes that “there are various… bills which are waiting for this Investment Bill to be finalised.” “It’s essentially these bills… that are increasing the risk for foreign investors.”

Another major problem making it hard to do business in South Africa is shortage of skilled labor and high level of unemployment. The official numbers from the government places unemployment at about 22.5% but the real number is closer to 40%. The lack of skilled labor makes labor expensive in South Africa in relation to other African countries. The high unemployment rate also means that there is a large number of unemployed youths who have less motivation to shun violence, mob actions, riots, and crime.

Lastly, if you want to invest in South Africa you should be prepared to deal with a systemic corruption that has led to infrastructure shortcomings. The country has a good road network and communications seems to be developing quite rapidly. However, energy is a major issue and businesses have to contend with epileptic power supply and predictably consistent blackouts.

Jeff Broth, a business writer and advisor. Consulted for SMB owners and entrepreneurs for 7 years now. Mainly covering finance, stocks and emerging fintech trends.

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2 Comments

2 Comments

  1. Fred Johnson

    Jun 20, 2016 at 19:44

    Ref Gold. Agreed resources underground and grams per ton are components to consider but surely ‘market perceptions’ and the the negative interest rate ‘experiment’ in many countries in Europe and of course, Japan, is going to drive money out of banks/bonds looking for a ‘positive return’? Soon the dollar will go up for while and then as USA exports drop, it will have to go into real negative rate. This will continue to drive up gold and silver. So getting into some not overpriced shares in these mines and even holding gold & silver would offer a better investment? The worlds financial markets are poised on a knife edge and are a disaster looking for a trigger to set it off another 2008- but more intense.Why?There’s too much debt and printing of money and this will be the downfall of ‘fiat’ currencies and, regretfully,those people who are not seeking ‘alternatives’ are going to loose wealth,, again.

  2. mangethe_z

    Jul 10, 2016 at 05:32

    this article mentions commodities as one of the most attractive investments. when you look at the risks involved with investing in SA that you mentioned the whole outlook on investing in SA suddenly seems very bleak. the best way to invest in SA for me would be to target the 40% unskilled and unemployed market. can you put a monetary value to this 40% or is it just a cinder-block to SA’s neck that will make sure that the country drowns in its own vomit of corrupt politicians…

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Investing

The Comprehensive Beginner’s Guide To Investing (And Growing Your Personal Wealth)

Are you a first time investor? You may want to get some guidance before you know your way around the investment world. We’ve got you covered! Read on to learn more about the best types of investment options, strategies to grow wealth and the dangers and pitfalls to avoid in investing.

Diana Albertyn

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Why should I invest?

Keeping your life savings in your back pocket or under a mattress isn’t going to bring you the wealth you desire. “There are only two ways to make money in our modern world: By working, for yourself or someone else, and/or by having your assets work for you,” says trader, advisor, and author Alan Farley.

Investing means your money is working for you and gives you the opportunity to grow what you save or receive through inheritance. As an investor, you’ll generate money through interest on what you set aside or by purchasing assets that compound in value.

When is the best time to invest?

Start today. When it comes to investing, the magic of compounding is best achieved when you realise that time is of the essence. “Compounding makes your money work for you by earning returns today on the returns you earned yesterday,” explains Thandi Ngwane, Head of Strategic Markets at Allan Gray.

“If you start early and save consistently over long periods, less of your total amount saved will be from your contributions and more from growth.”

The earlier you begin contributing to your wealth, the more significant these deposits will be later, as your money has much longer to grow. You’ll also be able to contribute less as retirement age approaches.

But what happens if you didn’t save and invest right from when you received your first salary in your teens or twenties?

What can I do if I am only starting to invest in my 30s?

More than half of us only start saving at age 28, instead of when we start working, according to Discovery Invest. And many more adults only consider investing in their 30s, with a large number starting only when they hit 40.

Catching up on the compounded returns you could’ve accrued over the last five, 10 or 15 years becomes much more difficult with the added expenses of a typical 30-something-year-old. Major life events such as buying a home, getting married, having children and starting to save for their education can be expensive when you’re also investing in your future.

So, how do you overcome these major life events while still investing for the future? According America’s Millennial Money Expert, Robert Farrington: “The goal is financial balance. You can do both – save for the present and save for the future. But it requires a little more thought and effort.”

  • Determine your investment choices based on your personal goals and risk tolerance
  • The best way to build wealth in your thirties is still through saving, so select a portfolio allocation that matches your risk appetite
  • Maintain a diversified portfolio of low cost ETFs.

What can I do if I am only starting to invest in my 40s?

If you’re 40 and over, your main financial focus should getting out of any debt you may still have. “Becoming debt-free and then you should focus on taking your savings to the next level,” says Schalk Louw, portfolio manager at PSG Wealth.

He advises you put any additional income – salary increases and bonuses – towards higher pension fund contributions, savings or paying off your debt. “While my preference for long-term savings will always be a share portfolio, those who find its risks too high, can always consider a savings account,” says Louw.

Related: How To Make Money Investing, According To Ashton Kutcher

What should you start investing in?

business-investment

So, now that you’ve established that you’re ready to invest, you should be considering your options. First, let’s look at the basic investments to start with:

1. Investment accounts

If you’re looking to save towards long-term financial goals, this is the type of account you should consider opening.

This investment can be used, for example, to supplement your pension or other income upon retirement, an investment account is an ideal way to maintain a good standard of living. An investment account is designed to set aside assets like stocks and bonds as income during retirement, to save money for your child’s education, or to put down a deposit for your first home.

2. Equities

Buying shares or equities gives you ownership of a certain percentage of a company. As a shareholder, you’re paid dividends – a portion of the companies’ profits. Shares are a risky, but beneficial form of investment. On the one hand, a decline in share price reduces the value of your investment, while the benefit of dividends is that they attract less tax compared to the other sources of investment returns.

Shares may take a significant amount of time before yielding dividends, but for long-term success, when your dividends pay out, they can be used either as income or as a reinvestment into your share portfolio.

“The combination of dividends and the growth in capital market value of your shares over time is the total return for your investment,” according to Discovery Invest. “It therefore gives you the best chance of beating inflation.”

Some of the pitfalls of equity investment, says Craig Hutchison, CEO Engel & Völkers Southern Africa, include:

  • Share prices for a company can fall dramatically
  • If the company goes broke, you are the last in line to be paid, so you may not get your money back
  • The value of your shares will go up and down from month-to-month and the dividend may vary.

Reduce your risk by investing in various sectors and shares.

3. Unit trusts

If you’re seeking an investment that provides you with easy and affordable access to financial markets, unit trusts are an option. Not only is this a smart way to save, while beating inflation, but a unit trust offers you exposure to a range of assets, explains Hutchison.

“Your money is combined with the money of other investors who have similar investment goals,” explains Ngwane. “Our investment managers use the pool of money to buy underlying investments to build a portfolio that is then split into equal portions called ‘units’. Units are allocated to you according to the amount of money you invest and the price of the units on the day you buy them.”

Hutchison notes the following disadvantages you should be aware of before investing in unit trusts:

  • There are costs over and above those you’d pay if you were investing directly
  • Unit trusts may not be as liquid as some other investments
  • Reliance on managers to select the best appropriate funds.

Related: Now Almost Anyone Can Invest In A Hedge Fund

How can you continue to grow your portfolio?

portfolio-growth

More complicated investment options

Investing in the JSE

When buying shares, there are three crucial considerations to be made: Which company’s shares  to buy, the number of shares you want and how much you’re willing to pay for them.

The next step is an online, in-person, or telephonic discussion with your broker who’ll then forward your request to the JSE. Thereafter, your bid joins other requests to buy or sell shares on a central order book.

Finally, should the price you’re offering match with a seller at the same price, the JSE will ensure the transaction takes place, making you the new owner of the shares you requested.

Be aware of the risks

You could lose everything if you invest in one share and that company goes bankrupt. “You can diversify by buying into many different shares. An easy way to do this is to invest in something like an exchange-traded fund (ETF),” suggest experts from the JSE. “An ETF is essentially a basket of shares. You buy the basket and get anywhere from 10 to 600 different shares in that basket, reducing the amount you would lose if one company were to go bankrupt.”

Online share trading

As a potential first-time online investor, you may begin your journey by surfing a number of online share trading websites either those offered by all the major banks, or other providers.

“The biggest investment you make at this stage is in time,” says Brett Duncan, head of Standard Bank Online Share Trading. “You need to spend at least seven hours a week educating yourself – either studying newspapers or financial magazines, or tracking your portfolio.”

Be aware of the risks

According to PSG Online, no one should trade shares unless they have instituted risk control measures such as putting ‘stop loss’ controls in place. Share trading requires a high appetite for risk, time to watch the markets and an expert knowledge of the markets and trading process.

Darren Cohen, head of marketing at PSG Wealth, explains: “Making an informed financial decision is key to mitigating risk where one has considered the options that would best suit their personal needs. It‘s for this reason that client education is imperative to PSG Online’s mission of creating wealth for our clients.”

Offshore investing

This type of investment affords you two options, says Maarten Ackerman, chief economist and advisory partner at Citadel: You can either take money out of the country by converting it into hard currency and investing it overseas, or you can choose a rand-denominated investment via a South African unit trust.

Should you select the second option, your money is consigned in a rand-denominated asset-swap fund, and the unit trust uses that money to invest offshore. When the money is eventually repatriated, it will be paid out in rands.

“Politically risk-averse investors will prefer to make use of direct offshore investing, as with this option the investor never has to repatriate or convert their investment back to rands,” says Magnus de Wet, director of Vista Wealth Management. “With a weakening rand, direct offshore investing would be the preferred investment approach.”

Be aware of the risks

Investing in any type of commodity involves potential loss. Two of the measures you can take to reduce risk are:

  • Investing in low risk commodities, for example, a fixed deposit with an offshore bank
  • Diversifying your offshore investment portfolio adequately to balance out high risk offshore investments with more conservative, secure investments?

As a newbie to investing you be risk averse, so high-performance offshore investments, although brimming with the promise of very high returns, are not recommended until you know your way around turnovers and returns.

Related: Becoming A Self-Made Millionaire: 5 Things To Do To Become Wealthy

How to make money investing

business-investment-cash

Contrary to popular belief, you don’t need (a lot of) money to make money. Wealth isn’t a prerequisite for investing. You can take advantage of investing over time, if you start sooner rather than later. While this means you’ll have to wait a little longer before quitting your job in favour of early retirement and living off your dividends, the long-term rewards are lucrative.

Remember these crucial pieces of advice before making your investment decisions:

  • Diversify your portfolio, so you never have all of your money invested in one account, venture or business. The best way you can manage risk is by not putting all your eggs in one basket
  • “Be careful who you trust with your money, make sure you invest your money with a reliable and established company with a solid history and reputation, do your research and do not be afraid to ask questions,” advises Craig Hutchison, CEO Engel & Völkers Southern Africa
  • You can achieve a great deal by simply investing or saving portion of your salary every month
  • Know the difference between investing and saving. “Saving is storing your money, while investing is growing your money,” he says. “One of the significant differences between the wealthy and not-so-wealthy is that wealthy individuals earn interest while everyone else pays interest.”
  • “The way that the prosperous continue to build their wealth isn’t really a secret – they spend less than they earn, save the difference, and let the potential of compound interest make their riches grow,” says Hutchison.

“Financial wellbeing is a long-term commitment, but with the right guidance, discipline and savvy decision-making, you may achieve your goal sooner than you think. It is never too late to start investing in your financial well-being,” he concludes.

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Investing In Wealth-Generating Assets

With returns of between 10% and 16%*, impact investing offers more than just the chance to do good.

Fedgroup

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Through a combination of innovation and technology, investors are finally in a position to own a stake in lucrative farming operations without high cost barriers, while at the same time having a positive impact on the environment.

Global trends, local applicability

There has been a recent trend towards socially conscious investing, known as impact investing, which has gained significant traction in first-world markets. Younger investors in particular want their money to do good in the world, but still expect a good return on their investment.

This trend, combined with the desire of many entrepreneurs to own a viable side-hustle, provided the impetus behind the creation of Impact Farming by Fedgroup.

Impact Farming differs from conventional impact investments in a number of ways. Other impact investment products usually consist of portfolios that offer access to shares in companies that meet certain social and environmental criteria. South Africa’s leading independent financial services provider, Fedgroup, in contrast, believes that investing directly in ventures is a smarter alternative.

Related: Balancing Business And Investment Risks

The perfect side-hustle

bee-farming

That’s because investing in shares and funds can be unnecessarily complex and often diminishes returns through hidden costs. In addition, barriers to entry can be prohibitive. Fedgroup has therefore leveraged the ubiquitous nature of mobile to deliver a fast, lucrative way for investors to directly own assets in high-yield farming ventures. It’s the perfect side-hustle, without the hassle.

Fedgroup’s Impact Farming investment platform offers investors access to a growing network of local crowd-funded farming ventures that generate solid profits to deliver competitive returns. From as little as R300, investors can own assets across three different ventures, blueberry, sustainable honey and urban solar farms.

Investors buy assets at one of Fedgroup’s approved sites, forming a venture network that is managed by farming experts.

Tax benefits and passive incomes

Investors get paid in regular cycles for the yields their assets produce once they are harvested and sold to Fedgroup’s contracted customers. This money can then be enjoyed as passive income or reinvested to benefit from compounded growth. Impact Farming assets also qualify for a tax benefit associated with renewable energy and sustainable farming.

Not only does this model significantly lower the barriers to entry inherent in traditional fund investing, but it also allows socially conscious investors to make a big impact with their money, regardless of the amount invested.

And there’s also less risk compared to various traditional investments thanks to the innovative approach. Extensive due diligence is performed on every product line to ensure its viability before it is brought to market. The company then carefully vets and selects Impact Farming ventures for both the financial impact they have on investor wealth creation, and the positive impact they have on the world.

Related: More Than Sun In Your Eyes: Fedgroup’s Impact Farming Solar Offering

Considering risk

Fedgroup also built market-tested financial models that were deliberately designed to be conservative when forecasting returns. However, as the profits from investor assets are pooled, so too are the yields, which mitigates the risk of individual assets underperforming. And with service level agreements in place with providers, Fedgroup ensures that assets continue to perform in line with projections, unlike the unpredictable nature of company shares.

The assets are also insured, the cost of which is included in the purchase price. Therefore, if an investor’s asset is ever destroyed in a natural disaster, Fedgroup replaces it. This asset class also runs counter to market cycles and therefore offers diversification that is virtually unmatched.

Fedgroup’s Impact Farming platform offers a unique wealth creation tool for a new breed of investor.

* The projected returns of between 10% and 16% per year are the asset owner’s internal rate of return (IRR). This is the rate of return after the initial purchase price has been subtracted, and which also takes into account the time value of money. For instance, a R4 000 beehive is projected to produce a total income in excess of R9 000 over its 10-year term, which represents an average return of 23% per year. If the IRR calculation is applied, it provides the projected IRR of 15% p.a.

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Investing

What Is Genuine Wealth?

Genuine wealth accounts for what we value most and allows us to objectively assess our real assets (our strengths) and opportunities for developing our real wealth potential.

Dr John Demartini

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So often we toss certain common words around – like the words ‘genuine’ and ‘wealth’ – as if we fully understand what they mean. But, do we actually and fully understand the original, deeper meaning of these significant words? Maybe it would be wise and worthy to explore for just a moment what the two words ‘genuine’ and ‘wealth’ might have originally meant or at least could mean to us today. The word ‘genuine’ comes from the Latin word ‘genuinus’ which means ‘innate’ (true, actual or sincere). And the word ‘wealth’ comes from the Old English words ‘weal’ (well-being or whole-being) and ‘th’ (condition), which taken together means ‘the condition of well-being or wholeness’.

Of course, when the two terms are combined, ‘genuine wealth’ could now be perceived as relative, and as having widely different applications. Originally, genuine wealth signified real or sincere well-being and was applied to eternal spiritual as well as temporal material welfare. Later wealth was used in the sense of large material possessions, or of what seemed large to those who had little. It has been stated, ‘without ambition, without aspirations, life is not worth living’. The noblest of all ambitions is liberation or freedom from physical or social bondage, slavery and constraint and this independence demands genuine wealth or the empowerment of all areas and aspects of our lives.

Genuine wealth is a vital force, one of the greatest of forces for the enfoldment of culture and the birthing of liberty. Genuine wealth dominates everywhere, exercising its forceful influence on both spirit (the liberated or inspired mind) and physical resources, or matter. In the genuine wealth of the world is the accumulated power of civilisation. Genuine wealth is the measure of human progress and possibility. Where there are no storehouses of genuine wealth, there can be no storehouses of fulfillment, nor inspired beings or great knowledge. And where there is no learning, there can be no individual or social progress. The existence of culture, whether it is part of a nation, or now a global society, begins with the creation of genuine wealth, i.e. individual and even cultural wholeness.

Genuine wealth represents the people, places, things, ideas, actions and events that make life worthwhile or valuable. It is the experience of a life worth living and one that is aligned with our true, highest and most meaningful values and/or principles; not only as individuals, but also collectively as families, communities, cities, states, nations and someday worlds. It is the actual condition of our collective well-being (spiritually, mentally, vocationally, financially, socially and physically) that make up true and genuine wealth.

Related: 8 Rules To Build Wealth When You Weren’t Born Into Money

Genuine wealth is measured and assessed by the conditions of all things that make life collectively valuable and meaningful and it implies total or whole life wealth. Many people are accustomed to looking at wealth strictly in financial terms or earthly property and physical possessions and yes, this too is also essential for individual and social development and progress, but genuine wealth is much more than that and we know it intuitively. It can include inspiring ideas or causes, intellectual properties, business ventures and assets, financial investments, family relations and possessions, social influences and causes and physical talents or even beauty.

Conventional economics and business indicators of prosperity like GDP (gross domestic product), stock market indices and other economic indicators are important and certainly contribute to one facet of wealth, but they all make up only a part of what could be properly defined as genuine wealth.

Genuine wealth involves real value, which represents the diversity of words that make our lives admirable and merited and truly worth living. Where we spend our money discloses our true values and what we hold to be important. Genuine wealth represents all the things that make our lives meaningful, that resonate with our truest nature and more holistic being centred within our hearts. Genuine wealth is an accounting of life; like a window onto our souls, or a mirror image of our genuine selves. Genuine wealth emerges when we are being in touch with our highest core values, our complete life assets and our full awareness and potential. Genuine wealth includes all assets that contribute to our complete and balanced state of living and being. Genuine wealth accounts for what we value most and allows us to objectively assess our real assets (our strengths) and opportunities for developing our real wealth potential.         

For more information on Dr John Demartini visit www.drdemartini.com

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