YOUR MONEY: Sweat the small stuff, it’ll pay off

Question:

I’m thinking of putting about R200 away monthly for possibly 20-plus years. The idea is just to put some money away but not break the bank. It can be a fixed deposit account or anything I can basically forget about. Any ideas?

— Fat Wallet Facebook community member

Answer: 

While a fixed deposit is a great product, it really is best for shorter-term saving rather than long-term investing, and 20 years means you really do have time on your side.

As an example, if you save the money at 8% a year you’ll have about R120,000 after 20 years, whereas investing at, say, an 11% return would grow your contributions to about R170,000 — clearly a significantly better return.

An investment could be as simple as buying a diverse global ETF and just forgetting about it. The value will fluctuate in the short term and sometimes decrease. But, given time, it will give great returns.

A last point is that, if possible, increase the amount every year even if just by 5%. Using the above calculations, increasing the R200 a month by 5% every year would grow the investment to about R240,000 rather than the R170,000 projected.

Another nice return for a modest inflation-related increase every year.

— Your Money team 

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