I am 21 years old and am looking for some advice. I have invested about R57 000 since May 2020 and my investment portfolio currently sits at R75 000. This is a combination of two-thirds equities and about one-third in tax-free savings ETFs. I have about R100 000 in a savings account and R50 000 in a fixed deposit savings account.
I am thinking of buying an investment property in the next three to five years. What would be the next logical steps to:
- Utilise my money better; and
- Maximise my capital?
(Ps. I am working full time and living with my parents, so I can be exposed to high risk).
Well done on being able to save a substantial amount of money at a relatively young age. You are certainly ahead of the curve in terms of planning and implementing a strategy to generate long term wealth.
Please note that the recommendations here are based on limited information. I would encourage you to engage in a more comprehensive discussion with a qualified financial planner in order to better understand the options that are available to you as well as the associated risk.
Your question is broken up into two parts. The first part is around utilising the money better or structuring it in an appropriate way. The second part revolves around maximising the capital or maximising the return.
Utilising my money better
Your investments are spilt between three savings vehicles with 33% of the money invested in growth assets whilst the remaining 67% is invested in interest-bearing accounts.
Unfortunately, fixed deposits and retail banking “savings accounts” are yielding very low levels of interest which in some cases are below the reported rate of inflation.
This suggests that you should consider alternatives to fixed deposits or savings accounts.
Traditionally speaking, multi-asset low equity funds or “stable funds” have a recommended investment time frame of three years whilst traditional multi-asset high equity funds or “balanced funds” have a recommended investment time frame of five years. Based on your questions, one should have a detailed discussion around risk-return expectations and asset allocation in order for you to make an informed decision.
Based on your comment regarding exposure to a high degree of risk, I would infer that an appropriate risk profile for your investments may be along the lines of balanced worldwide multi-asset flexible funds. Note that the appropriate time frame for these funds is five to seven years.
Maximising my capital
As suggested, you may want to consider using balanced worldwide multi-asset flexible funds in place of low yielding savings and fixed deposits. I would caution against taking on any more risk than this given your investment time frame.
Purchasing a property
Whilst continuing to accumulate money in order to purchase a property, I would recommend that you talk to people who own investment properties as well as estate agents regarding the things to look out for and consider when purchasing an investment property. Also, consider using an attorney to draft a rental agreement rather than sourcing a generic rental agreement document. It could prove to be an invaluable decision in the event of a dispute.
This article is an interesting read for anyone who is looking to purchase a property.
I wish you all the best in your financial journey and as a future property owner.