A stokvel borne out of a desire to boost financial literacy has grown to boast investment holdings of R1 million in just over three years.
Lazola Belle founded the Johannesburg-based Social Invest and Trade club (SIT) with 11 friends in late 2013 out of both frustration and necessity.
“I got a call from a friend who needed money to take his daughter to the doctor. I didn’t have the money and I was irritated. I thought ‘why don’t I have the money?’ and then I thought ‘why doesn’t he have it?’ – at that time, we’d been working for corporates for around eight years. I tried to call other friends to help out and no one had the money.
“That’s when I realised that something was wrong. All of us were driving fancy cars, we looked the part and we had the lifestyle but we didn’t have the cash flow. We were professionals, we knew how to make money but didn’t know the principles of money”.
Belle and his friends then realised they needed to learn to manage their money. Knowing that financial advisors sell products, they opted against seeking help from them due to potential “conflicts of interest”. Instead, they decided to change the conversation at their social gatherings.
“All we used to talk about was women, fast cars and sports. That’s why we found it hard to navigate life and the principles of money,” he said.
That eventually led to each person contributing R1 000 and collectively buying into two Johannesburg Stock Exchange (JSE) Index Trackers in November 2013. He told Moneyweb that the group didn’t have a mechanism of choosing investments and merely picked exchange-traded funds (ETFs) as they were low cost and mitigated risk.
“The JSE is largely untransformed. It was a mystery to us and was always presented as this scary world. But was also the one place that constantly seemed to attract money. So, we took our money and put it there and because we didn’t want to lose it, we were forced to acquire the knowledge.”
SIT has since grown its portfolio of investments to more than R1 million although Belle estimates the lifetime impact of the club, which includes payouts to ex-club members, is R2 million.
He said the group’s greatest return has been education. “Six businesses have emerged from our core group. Some of them have failed but that’s okay, they wouldn’t have emerged if we didn’t change the conversation. The more we talk, the more progressive we become.”
SIT plans to register as a Co-operative Financial Institution (CFI), which is a deposit-taking financial institution that is owned and controlled by members. Its newly-elected chairperson Kgauhelo Moeca, who takes over from Belle, has been mandated to grow the club’s holdings to R10 million in the next five years. Its goal is to hit the R100 million mark by 2030.
Under the CFI structure, the group would be allowed to take on 200 members, which when considering contributions from those members results in R10 million being a “small amount”, Belle said when quizzed about the group’s lofty ambitions. SIT currently has 20 members, who each contribute R1 331 per month.
Belle said SIT would also directly approach underwriters with a view to insuring their members and in so doing bring down insurance costs, which he described as a short-term benefit of being in an investment club with a long-term focus. It would also explore extending loans with competitively priced interest rates to its members.
Belle told Moneyweb that the key to running a successful collective savings and investment vehicle comes down, in part, to psychology. According to him, the establishment of Stokvels in rural areas from the 1940s onwards is linked to migrant labour, whereby labourers would leave behind money for mothers to keep the family going when the returned to the cities to work. These mothers would then pool their money together to create economies of scale, which helped them purchase goods.
“Stokvels are consumption vehicles. They tend to die as inflation eats away at the money in the bank or they are often depleted at the end of every year. The mindset is very desperate, that’s why if you start a Stokvel today with that 1940s mindset, you won’t be very successful”.
As such he and his group of friends have decided to term their vehicle an investment. “In truth, stokvels and investment clubs are the same thing but an investment club is driven by an excess mindset. And the minute you adopt an excess mindset, you look at money differently,” he said.
His tips for running a successful savings and investment vehicle include setting a start date and committing. It is also important to draft a binding constitution upfront and stick to it, albeit making room for revisions as time goes on, as this is especially useful in resolving disputes. He also advises against depleting the fund on an annual basis and rather taking a long-term view of at least ten years.
Stokvels are a popular savings and investment vehicle, with the National Stokvel Association of South Africa estimating that around R49 billion is invested in stokvels around the country every year.
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