I need to pop the question in less than a year (more or less 12 months). I can save around R7 000 a month towards a ring. How do I save my money? Do I save in a bank account or do I invest? What is the best way to save/invest?
Mduduzi Luthuli - Luthuli Capital (Pty) Ltd
There’s plenty advice out there for how to invest your long-term money. You know, the money you’re putting aside for retirement, your kids’ education, and other goals that are a decade or more away. But what should you do when it comes to short-term savings goals like your emergency fund, a deposit on a house, or an engagement ring? Should you even invest the money? Or should you keep it in a savings account?
This is a question I get a lot from my clients. They like the idea of investing because it offers the potential for better returns, especially when compared to a savings account. A lot of people hate the idea of keeping money in a savings account. They feel like it’s just sitting there, earning next to nothing, and that they’re missing out on getting better returns elsewhere. This idea holds true depending on the investment term.
Investing typically isn’t a get-rich-quick tactic or something you can do for a short period of time and expect to make a significant amount of money. It’s often a long-term process, one that requires patience, commitment, and keeping calm when the market fluctuates, as it inevitably will. That being said, there are options for ‘investing’ on a short-term basis.
A short-term investment is an investment you expect to hold for three years or less, then sell and/or convert to cash. Examples of short-term investments include money market funds, fixed-deposit accounts, and short-term bonds. What’s important to remember when you’re looking at a short-term investment, is that the amount of money you save is more important than the interest rate you earn. In this short timeframe (12 months) there’s simply not enough time for compounding interest to really work its mathematical magic on your money.
Short and sweet
To have liquidity and the potential for a higher return, as compared to a savings account, I don’t think you should look further than a Money Market Fund, which has the goal of maintaining the value of your investment –allowing you to access your money whenever you need it, while generating a sound level of return. The fund typically targets returns higher than a bank deposit and is perfect for investors who need a high level of stability and only want to invest for about one year. While this is a very low risk parking place for your money, it is not 100% risk free and is subject to default risk. This shouldn’t deter you though as the potential risk really is low. Unfortunately, anything that offers the sweet allure of a return, will always possess some inherent risk.
All the best when popping the question. I wish you a long and happy marriage and in doing so, I leave you with this quote about love from American fiction writer F Scott Fitzgerald …
I love her, and that’s the beginning and end of everything.