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Imagine doing just 40 hours of work and earning R2.7m.

No, it’s a not a crypto-scam, nor does it require you selling pots and pans via a convoluted multi-level marketing platform. But there is a caveat: those 40 hours are spread over many years, and you need a pile of cash first.

This is a story of how investing early, and allowing the power of compounding to do its work, can lead to a superlative outcome. And it proves in practice the theory that money can make money, even if you barely lift a finger to make it happen.

It does require extraordinary focus, discipline and tenacity to get started, though. Personal finance books are full of this sort of theory – if you can stay awake long enough to get to the juicy bits.

In July every year I get to spend 20 minutes on the radio with a woman known to my audience as “Super-saver Julia” (not her real name). She has developed a huge following over the past decade as I have helped tell her story of how, for 10 years from 2007, she invested about a third of everything she earned in a range of exchange traded funds (ETFs).

She stopped adding new capital to her investments in 2016 as she started a family, bought a Volvo and upgraded her small flat to a family home. Instead of adding to what at that stage was an underperforming ETF portfolio, she used her extra cash to pay down debt quickly.

Still, by the time she stopped contributing to her investments, she’d put away about R3.2m. She avoided the route many take: to cash in the share portfolio to buy a fancier lifestyle as a reward for her diligence. Instead, she left the capital alone and used the cash freed up from her investing habit to pay debt.

At the time, SA markets were hugely undervalued relative to many in the world, for all the reasons we know. Jacob Zuma was coming to the end of his term as president and details of the plunder of the state were beginning to emerge in the hundreds of thousands of Gupta e-mails that would eventually accelerate his departure.

Nonetheless, Julia left her investments untouched — and today’s she’s reaping the benefit.

From small beginnings

So how do you get to this stage, you ask?

Well, Julia’s investing journey began just before the global financial crisis of 2008, after a road trip with her aunt. She’d asked her aunt why it was that she wore nice clothes and drove a better car than her parents — and the conversation soon turned to investing.

Julia then met financial adviser Warren Ingram, an executive director at Galileo Capital, who encouraged her to divide her income into thirds: the first going into tax, the second into investments and the last part for living expenses.

At the time she was earning R300,000 a year as a young professional. Her earnings would grow more than five times over the decade as she moved up the corporate ladder.

But in addition to creating a discipline around investing, Julia was also parsimonious in her spending. For example, she drove a second-hand Opel Corsa Lite for years (before passing it on to her husband) and rented a one-bedroom flat close to work.

Importantly, she didn’t cut back on living life. She would regularly eat out in restaurants, and as an avid traveller, made a point of at least one international holiday every year. She drew comfort from the fact that once her biggest obligations were taken care of, whatever was left could be spent with a clear conscience.

By the time Julia was ready to start a family, she’d already laid the base for financial independence and had less pressure to invest, which allowed her to pay down loans on a new family home, renovations and a family car.

School of hard knocks

Needless to say, it hasn’t always been smooth sailing. No sooner had she begun investing than markets tanked in the 2008 crash, for example.

But Julia’s biggest regret and lesson from that time was not sticking to the principle of investing a third as shares plunged in value. Had she done so, she could have bought shares at much cheaper prices, and been better off today. It was only once the recovery was under way that she recommitted to the plan.

Still, that was a lesson she needed to learn, and she continued to put money away consistently until about 2016. By then, the R3.2m she had invested was worth just R4m.

Which leads to another important lesson: in the early stages of investing, the gains are incremental, and the compounding kicks in only later. The value of the portfolio trickled up in 2017 and by 2018 was sitting at R4.7m.

As it turns out, super-saver Julia’s timing is not always spot on.

For one thing, she couldn’t have timed her resignation from her corporate career much worse: not long after she abandoned the security of a salary and launched her own tourism business in late 2019, the world went into lockdown.

Then, in March 2020, as the pandemic rocked markets, the value of her portfolio also fell by about a third. This time, however, she stayed the course. Which turned out well for her in the end, given that the JSE hit a new record last week.

She is grateful, however, that she has savings to fall back on, should there not be a recovery soon. In fact, during the past year, Julia drew down on her dividends and capital for the first time, using R141,000 to cover her expenses.

Having that investment meant she didn’t need to panic over her decision to stop formal employment — even though her industry, dependent on foreign tourists, has been effectively closed down and her options for earning an income are few.

Today, Julia spends about eight hours a year formally reviewing her investments.

At last count, 27% of her capital was sitting in the Satrix 40 ETF, which tracks the 40 biggest companies on the local market. Another 20% was in the Satrix Rafi, which also tracks the biggest companies on the market but incorporates some fundamental research. A further 6% was in the Satrix Fini, the financial index.

It means that more than half her money is exposed directly to shares listed on the JSE. Her biggest global holding is in DBX World, a globally diversified basket of shares, with 15% of her capital there. She has some more invested in the DBX Euro, with a smattering of other smaller exposures to other markets like Japan.

The point is, Julia’s investments, even after the recent draw down, have grown to nearly R6m — a gain of more than R2.7m on the money she put in. It’s given her a buffer for the lockdown, and she lives in a home that’s paid off, and drives a car she owns outright.

All of which should alleviate the next burden: school fees.

Whitfield presents the Money Show on Radio 702 and is the author of ‘The Upside of Down: How Chaos and Uncertainty Breed Opportunity in SA.’


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