What to consider when moving from Stokvels to formal savings

• Published date: 28 September 2024
• Publication title: Independent on Saturday

My family has a long history of participating in cultural savings clubs like a stokvel, but I’m considering exploring other, more formal methods of saving. What steps should I take to transition effectively while ensuring my savings are secure and growing

Name withheld

Lorika Steyn, Wealth Adviser at PSG Wealth, Pretoria East, responds: Transitioning from your family's stokvel tradition to more formal savings methods is a big step. Your family’s commitment to saving has given you a fantastic foundation – now let’s build on that.

Let’s explore some powerful savings options that can help secure your financial future:

High-interest savings accounts: Think of these as your stokvel’s more flexible version. They're great for short-term goals or rainy-day funds, offering better returns than a regular bank account while keeping your money accessible.

Unit trust funds: These are like a bigger, professionally managed stokvel. Your money is pooled with others and invested in a diverse range of assets. They offer the potential for higher returns but do come with some market risk. It’s a great way to grow your money over the medium to long term.

Tax-Free Savings Accounts (TFSAs): TFSAs let you save without paying tax on returns. They're flexible and can include cash savings or investments like Unit Trusts, all growing tax-free within certain limits. The TFSAs are also essentially a medium to long-term investment product.

Retirement Annuities (RAs): This is a long-term savings option. They offer tax benefits now and help secure your golden years. Think of it as planting a tree today that will provide shade in your retirement.

Starting this journey doesn’t mean abandoning your stokvel roots. Why not begin by putting a portion of your contribution into one of these new options?

Your family's stokvel participation has instilled in you the power of consistent saving. Now, you’re taking that wisdom and applying it to new opportunities for growth. This may feel overwhelming, but a professional wealth adviser can provide personalised advice to help you find the right balance for your goals.

New interest cut explained

I'm new to investing. How do changes in the economic environment such as an interest rate cut affect the different investment types?

Name withheld

Graham Lovely, Wealth Manager, PSG Wealth, Claremont, Cape Town, responds: If interest rates go down in isolation, here's how different asset classes might fare:

Bonds:

■ Prices will rise, as existing bonds with higher...