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Think you need to be wealthy to start investing? Financial expert Sean Kelly says putting away R1,000 a month can be a meaningful starting point, and over time, compound growth can make a substantial difference.

Kelly, Director at Parity Wealth Managers, spoke to 702/CapeTalk’s Africa Melane about how South Africans can begin investing, what to consider when choosing an investment and why a long-term plan matters.

Using an example of someone investing R1,000 every month for 20 years and earning an average annual return of 8%, Kelly said the investment could grow to close to R600,000.

That is despite the investor contributing a total of R240,000 over the period.

“It actually demonstrates how powerful time and compound growth can be,” Kelly said.

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You don’t need to be wealthy to start investing

Kelly said one of the biggest misconceptions about investing is that people need to be wealthy before they can get started.

“R1,000 a month is actually a fantastic starting point,” he said, adding that some investment platforms allow people to begin with considerably less.

One option for beginners is an exchange-traded fund (ETF), which Kelly described as a basket of investments.

Rather than trying to identify a single company whose shares might perform well, investors can use an ETF to own a small portion of hundreds of companies, both locally and internationally.

Kelly also highlighted tax-free savings accounts as an option for long-term investing, explaining that these accounts can hold the kinds of investment baskets he had described.

He said the annual contribution allowance of R46,000 meant that investing R1,000 a month would fall comfortably within the limit.

Why chasing quick returns can be a mistake

Kelly cautioned against expecting to get rich quickly, particularly when social media showcases people making substantial returns from individual shares or cryptocurrencies.

“The biggest mistake some investors can make is expecting to get rich quickly,” he said.

The returns investors should expect depend on what they invest in and how much risk they are prepared to take, Kelly explained.

For people who may need their money within a year or two, he said capital preservation was important. A savings account or cash account could offer more stability, although returns would generally be modest.

Those investing over a longer period could consider a diversified share portfolio or a balanced portfolio, which offers greater long-term growth potential but can fluctuate significantly in value.

Kelly said a long-term investment objective of earning between 3% and 5% a year above inflation over a five- to 10-year period could be a reasonable starting point.

He stressed, however, that investment choices should reflect the period for which the money could remain invested.

Know what you’re saving for before you invest

Kelly said establishing a clear financial goal was the starting point for deciding where to put money.

Someone saving for a short-term expense would have different needs from someone investing for retirement decades away.

He also warned that not all investments offer the same access to money.

While money in a normal savings account is generally available quickly, retirement investments have withdrawal restrictions. Tax-free savings accounts are generally accessible, but withdrawing money means the contribution allowance used cannot be reclaimed.

That makes it important to keep emergency savings separate from investments intended for the future.

“My advice would be to separate your money into two categories, money you need tomorrow and money you’re investing for the future,” Kelly said.

He added: “You don’t need a fortune to start investing, but you do need a plan.”

Kelly acknowledged that many South Africans are under pressure from the cost of living, making it difficult to put money aside.

Speaking after the delivery of the Medium-Term Budget Policy Statement, he said there had been little room for further relief, although increases to certain allowances earlier in the year had been positive.

He pointed to rising fuel costs and medical aid increases as additional pressures on household finances.

From a wealth management perspective, Kelly said people should focus on saving what they could afford and being deliberate about their finances.

He recommended starting by examining income and expenditure, preparing a cash flow statement and setting short-, medium- and long-term goals, including retirement.

“Of course, the earlier you start, the more time you’ve got to work for you,” he said.

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