WHERE TO INVEST YOUR MONEY – A COLLECTION OF INSIGHTS AND EXPERIENCE


Investing & Money
piece written on the 27th October 2013 by  

Over the years I’ve run into several scenarios where I’ve had to decide what to do with my money. To me it never mattered whether it was a lot or a little, it was just about the fact that there was some money not doing anything when it should be doing something. If you’re like me and didn’t have someone to guide you, you’ll know how scary the big bad investing world is, where do you invest your money, who do you use to invest it, what will you get back and so forth. These are massive questions, questions that don’t even really have precise answers and that’s what makes this so difficult. I want to share my story with you along with opinions from many people I’ve spoken to.

Before I get into this I think it’s really important to state that I’m not a professional, I’m not the person who can quickly explain the difference between derivatives, futures, CFDs and so forth. This blog post reflects on my experience over the years and some advise that I’ve been given over the years. If you follow it, that’s your decision, but do so carefully because I’m a digital marketer, not an investment banker!

The very first time I was faced with a scenario about investing money was about a decade ago. I was living at home and working as a senior developer for a UK based property company which paid well. My expenses were incredibly low and my salary was providing me with a great surplus at the end of every month. I watched friends go out and buy cars, upgrade their computers and so forth and the temptation was there. I remember, as if it was yesterday, my father passed me a piece of advise in passing, he said that instead of going out and buying a new car, I should rather just keep the money and for some reason it stuck. In light of transparency, I had about R100,000. To me this was a fortune, I mean, 6 digits in my bank account – It’s over 9000! ;) Unfortunately I can’t remember who it was but someone said to me – is the money just sitting in your bank account? To which I said of course, to which they mentioned “interest rates” and in that very moment everything changed. The concept of interest hadn’t ever really crossed my mind and it was one of those lightbulb moments. My current account would be giving me literally 0.00000001% return, which effectively meant I was going to lose money due to inflation – I was gob smacked.

piggy-bank

Over the course of a couple months I took people for coffee, I had meetings, I made phone calls and basically tried to do everything I could to understand where I should put my money to get a return. At that point I wanted access to the money (liquid) so my options were limited. Everyone I met with spoke of RAs (retirement annuities) and although there’s a tax break, the problem was that the money wouldn’t be liquid and I wanted it to be. I also worried that the people I met were merely trying to sell their services rather than give me great advice. I ended up going with an FNB money market account. The return was a few percent if I remember correctly, but it was making me some money each month that was greater than what my cheque account was doing – I was happy. Why did I want the money to be accessible you might ask? I had a grand plan – I would move out of my parents place and I’d have a years worth of rent saved up just in case something went wrong – I was being risk averse and wanted to protect myself. I moved out and something amazing happened – at the end of every month I paid my rent with my salary and never touched the money in the money market account (of course, I was very careful, I didn’t blow money and I watched things very carefully). At the end of the first year I was incredibly happy, I had survived a cruel year of “pissing into a black hole” (Thanks Ian for the quote) and still had my R100,000 which had even grown into a little bit more. If I can remember correctly, the R100,000 had matured so much so that it had made enough to cover another 2 months of rent (or something along those lines) and that was another lightbulb moment for me – I had 14 months of rent saved up and I did nothing?! I want more! The concept of my money making me more money kicked me in the gut and I was hooked.

At this point I thought to myself – I’m getting 3% or so, I wonder where I could get more than 3% – “where do the rich go to get richer” was something that stirred in my brain. Although I wasn’t “rich” in the general sense, I was rich to myself. At this point something else was happening, I was now thinking the liquidity wasn’t the only place I should be putting money, everywhere I read, the more liquid the investment the less return. So I made some calls, I kept a lot of the money in the money market account and opened up two investment accounts – One with Old Mutual and one with Allan Gray under recommendation from a friend. Each month R500 would go into my Old Mutual account and R500 into my Allan Gray account. My Allan Gray account is a “Allan Gray Orbis Fund of Funds” and the Old Mutual is a “Coronation Balance Plus Fund and a Nedgroup Investments Rainmaker Fund A Class”. To be honest, I’m not too clued up on the returns each one has provided me with nor do I know the interest rates or penalties (if any) for removing the money. Why? Well, when I made the decision to get these investment accounts it wasn’t to generate a return, but to rather have money slowly growing over the years as two entities that could be cashed out to pay for my child’s first year of school or something along those lines. My idea was to find something that would grow my money, but I got swayed for some reason and went for what I felt suited me best – carefully accumulating accounts that could benefit my fiance and my life at some point and ease the blow of expenses down the line. In hindsight, would I still do this knowing what I know now? I think I probably would, the accounts are still there, they’re still growing a bit and they’ll be there when I have a child who needs to go to school, and I will pay for the year upfront and get a discount. I probably wouldn’t have gone the money market route second time around though, and rather placed the money directly into a Satrix 40 or the likes. What I can tell you about these Allan Gray and Old Mutual accounts is that I just opened up my statement and it says there’s R24,000 in the Allan Gray account – because it comes off monthly and because I don’t monitor it, this is wicked! R24,000 for what feels like I’m doing nothing effectively. They’ll keep growing. Is it the best return, nah, but it’s servicing my requirement.

 

Side note: Here’s an interesting article on the Raging Bulls Awards that look at the best management companies.

A friend of mine, Craig, whose very clued up on all of this said to me – it doesn’t matter what the best return is, it matters what your goal is. This is sound advise, so let me say it again – it doesn’t matter what the best return is, it matters what your goal is. My goal was to have 2 packets of money slowly growing for when I needed them – they are also low risk. If you’re paying attention you’ll have noticed that I’m doing what I did with my rent – that worked for me, so applying the same theory will hopefully work for me too – if something works, don’t try to change it. I believe that Grade 1 costs for Rondebosch Boys’ (where I went) is about R27,000 for a year and Pinelands Red School is about R14,000 for the year. Bishops is R88,000 a year! At this rate I’ll be able to pay year one upfront and still have change – but hopefully, like with the rental story, I’ll be able to afford it without digging into these investments, which can then remain unchanged and just grow further until I want a yacht *chuckle*

The last two paragraphs jumped ahead over the years, so let’s step back a little and see what else I did whilst all of that was going on. Unfortunately, I’m going to drop the full transparency now as I don’t believe that it’s in my, my fiances or my families best interests to offer full exposure over what I earn or have invested. I hope you can appreciate that.

Remember my money market account? Well, over the years following that first year of moving out I slowly topped it up with any disposable income that I had and the amount had grown rather well. I still had this lump sum of money that was really not doing much for me. Well, it was accumulating a good extra bit each month but with my growth, experience and all I knew it could be better – 3% is incredibly low. If you’re a close friend of mine, you’ll know that from the age of 5 or 6 I wanted a house. My mom tells a story of a girl called Shannon who I was crazy about and one day I sat down on my bed and said to my mom, “I’m not sure how I’ll be able to afford all the bricks for the house I want to build Shannon” *blush*. Anyway, I felt I was now at a point where I could buy a small house. I had the money for a deposit, transfer fees, legal fees and bond registration. My fiance and I started looking at the weekend papers and every Sunday we would go look at houses. I’m not talking 1 or 2 here and there, I’m talking 2 hours of rushing between houses for several months to get an understanding of what’s out there, what it would cost and basically to just familiarise ourselves with the market I guess. I’m lucky, my fiance is a bulldog when it comes to finding houses, she’d found her parents last two places and one day she said she had found our place. I raced through, walked through the door and knew it was right. My mom told me I’d know if it was right the moment I walked in, and it was that moment. I told the agent I wanted to buy it and was slapped with 30 odd pages of what could honestly have been another language. I fought on the phone, I tried to not be an emotional purchaser and all of that and the deal went through, Fiona and I were home owners!

buy-to-let

Hells bells, if you’ve never bought a house before, let me share some advise:

  • Look at as many houses as you can before you buy.
  • Try to find someone who can educate you on the upfront fees (legal, bond registration, deposit, etc).
  • Investigate the area you want to buy in – this is obvious, yet I don’t believe people really do it.
  • Understand how interest works!
  • Use a company called House Check if you can (thank you salsa dancing TeddyBear).
  • Learn which areas of a house work best for resell.
  • Think about how long you’re going to be there.
  • Don’t take shit from agents, if they push you, don’t give in! If you lose the house, that’s fine, another will come.

I’m not going to exhaust this post or go off topic too much, but in light of this post being about investing I think it’s important to take these points into account and make sure you’re well researched and understood before you go the property route. I’m talking about pre and post purchase, things such as maintenance costs (which as a renter you’ve never faced) are rather scary. Rates and so forth kick you in the butt too. Right, let’s move along.

Back in high school I entered a competition about the JSE, we were given fake money and told to invest in various shares and the winner would get a prize. I remember hustling, the games took a back seat and I got obsessed with the JSE – this was like a game that I wanted to clock. Hours and hours of (I think looking in the paper at share prices?) saw me winning the competition. Interestingly, I didn’t care that I won, it was the whole experience that had my blood bubbling. Mainline to my veins, this was the best thing since sliced bread. At the time I was too young and never considered doing it after that, but all these years later someone who I have a huge amount of respect for mentioned the JSE to me when I spoke about investing. This peaked my interest as you can imagine and I started investigating how to go about this. Do I hire a broker? How can I trade online? I made some calls, did some research and found myself sitting opposite the CEO of PSG Invest in this to die for office looking over the world. He was great, but I quickly learnt that he was the guy who helped people with big money! Nevertheless I learnt a lot and his honesty lead me to looking at PSG Online in far more detail. PSG Online would allow me to trade on the JSE from the comfort of my home, watch share prices, read the latest news and they even have a great iPhone app. I looked at the costs, tried to understand STRATE and STT fees relative to investments and went for it.

Side note: I’m good on a computer and rather good with numbers, but boy oh boy was it a rude awakening! If you go this route, don’t stress out if you don’t understand anything at first. It took me a good week to make a deposit and purchase some shares. I still feel like a complete noob when I use their online platform and have unfortunately not found someone who can break it all down for me. It’s a great platform, I have no complaints, but it’s overwhelming. Their webinars are helpful though.

jse

The next step I faced was to decide which shares: Old Mutual, MTN, Apsen, Naspers and so the list goes on. That was a difficult decision and I had to rely on friends and colleagues for advise. If you start researching you’ll soon realise that going with what other people say is not the way to do it, but it was the way I had to in order to get started. Fortunately, the advise I was given has resulted in a 13% (as of today) return thus far. 13% compared to that 3% from the money market account – you see what I mean! If I am to offer some advise:

  • PSG Online is the trading platform I would recommend.
  • Spend time trying to understand it.
  • Get used to reading and watching the news!
  • Learn what happens fees wise when you buy and sell.
  • Stick to the blue chip (mostly risk averse) shares until you know what’s going on. (I’m at this point still, I haven’t had the courage to take risks yet).
  • Take a read of Just One Leap (Thanks Steven).
  • Use FT Markets (Thanks Google).
  • Use Fin24’s tools.
  • Diversify.

The JSE is an interesting thing and the returns from the JSE over the last several years have been some of the best. I have found that it takes a fair amount of time so if you’re stuck for time it may be a good idea to explore a Satrix 40  account perhaps, which is essentially a fund you invest in that is spread out over the top 40 performing shares on the JSE. The company that manages the fund tries to mimic the Index as best as they can and I believe the returns over the years have been very good. This means you simply invest money and they do the rest for you, you don’t need to worry about buying and selling of individual shares, that’s their job. I was told that the Satrix 40 has done about 16-17% in the last year or so. That’s better than my return (although it hasn’t been a year for me yet), so I better step up my game!

Side note: The shares in my watch list are: AGL, ASR, BCF, IVT, BIL, IVT, KGM, MTN, NPN, OML, SAB and TAS.

Whilst slowly learning the JSE and becoming familiar with bond repayments and the likes I started to research about buy to let properties. I was also faced with the problem of outgrowing the current house and needing to look at something bigger. We listed our house with Heads Properties (Jonathan and Teresa were great) and held a number of show houses. We had a very specific number in mind that we wanted and because we weren’t desperate we weren’t emotional and were able to stick to this number. We received an offer for R100,000 less than what we wanted which wasn’t a bad offer, but it wasn’t enough (making that decision took a LOT of time, the way I wrote it makes it sound simple, trust me it wasn’t). So we decided to take the property off the market and investigated the concept of renting it out. If you know me, you’ll know I’m quite an organised person and can be rather anal at times. Let’s just say I look after my things, I’ll use sugar water once every few months to wash the walls down, I’ll spend hours on the weekend working on the garden and I’ll slowly move around a house fixing door handles, painting and just generally aiming to make it as perfect as possible. This was my home, how on earth would I rent it to someone who wouldn’t care as much as I did? Again, a few friends and colleagues assisted me with this and I remember Warrick saying to me, “Dude, it’s not going to be your home, you’re just renting an empty shell”. This was really great advise, it helped me move away from being emotional. With all that said, I struck some luck though – my sister was looking to move and asked if she could rent it. As Sheldon says, Bazinga! I admit, this was very fortunate and it won’t happen to everyone, but we all deserve some luck along the way and this was my time.  Oh yes, if you’re interested in buy to let properties, I can recommend Organic Growth as the very best resource for information. Organic Growth send out a fantastic newsletter that is filled with plain English property investing pieces of advise. I wish I had one for share investing – although, Bulls n Bears does a decent job about the markets, but not specifically about actioning things.

Once we had signed the papers and all, we started looking at properties again. Once again, my fiance called me up and said she had found the place for us and true as Bob we fell in love. This was a big decision for me though, I can remember the stress levels as if it was this morning! The property was going to be 3 times the cost of the previous place, it was triple the size and every single associated cost pre and post was going to be a great deal more. Between my fiance, my account, the bond originator (Ian Young whom I highly recommend) he recommended and myself we made it happen!

From the very moment that I sat down and took the time to understand how property works, how rental works and the incredible return that is available, my way of thinking completely changed. I’ve invested hours into reading and researching, and days into crunching numbers to determine whether a buy to let would yield a good return. It’s quite incredible once you “get it”. I would urge every single person I know to spend the time and get an understanding, it’s information that is invaluable. You may not be ready now or even in 10 years, but if that day comes and you have the knowledge, you’ll be able to make a move that will potentially set you up for retirement!

I put out a Facebook status update the other day asking people to share their investing insights and I got some  feedback that I want to share with all of you:

  • Most people are quick to say Property and Shares. They didn’t offer up too much more than that so it’s unfortunately no too useful, but it does show where a lot of people’s minds are.
  • Satrix came up a number of times.
  • African Gateway allows for foreign equity trading. I have not researched them myself.
  • Emporer Asset Management was recommended and they’re active on Twitter: @EmporerAsset. They claim to have yielded a 51.67% return last year in 2012. I have not vetted this though.
  • Before making a decision, decide upon the following: time horizon, risk profile, liquidity, other investments and investment objectives (tax, age, goals).

So that basically brings me to the end of this blog post unfortunately. If I can assist just one person with starting from step 2 or 3 rather than step 1 then I will have achieved my aim. I made mistakes, plenty of them and I’m still going to make plenty, but perhaps reading this will help someone avoid a mistake or two and that’ll be awesome – I wish I had someone who could have jump started my investing and saving.

It’s all about diversification in my opinion so my next journey will involve trying to invest outside of South Africa. With a JSE account, with properties and all of that, they’re all still based in just one country. To invest outside of South Africa would be the tipping point for me, at that point I’ll feel that I have a really rounded investment portfolio and I believe that I’ll allow me to rest easier. However, our Rand vs International currencies is not exactly favouring, so to get a decent International portfolio going will be a journey that takes many years. I’m ready for the challenge though!

I’d love to hear from you in the comments below – please share your stories and advise, let’s make this an incredibly useful resource for someone who is just starting out :)

Update: Since I left Bitcoins off this list, you might want to read my post on Bitcoins and how to get started here.

Update 2: Don’t forget to look at my insights in 2014 JSE stock picks.

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