5 Investments You Can Make With Very Little Money Or Experience
You don’t need to be a high roller to start building a fortune. These five investments prove that a little can still go a long way.
Invest, invest, invest! It’s a mantra you’ve heard recited by finance experts across the globe. But for all intents and purposes, they may as well be speaking another language. In the midst of a never-ending economic crunch, there’s barely enough money to keep a roof over your head and food on the table. And those crumpled notes left over at the end of the month – which fine financial institution would even want those?
Turns out, quite a few of them do. Small investments are turning into a big trend, with companies offering more and more avenues for guys like you and me to go from surviving to thriving in a few simple steps. We tapped the experts, stared at spreadsheets, and crunched the numbers to find the five best ways to turn your leftovers into future wealth:
High Risk/ Long-Term
“Investment returns are like cake,” begins AlphaWealth’s Keith McLachlan. “The more people you share them with, the smaller the slice you get to eat.” South Africa’s so-called Top 40 companies are the biggest investment targets for anyone looking for a safe, predictable place to cultivate a profit.
These are the largest businesses, corporate monoliths with a multinational presence and access to troves of precious resources. But because everyone has their forks up for a slice, their returns tend to be lower than the rest of the market. When you’re focusing on the cream of the crop, you’re missing out on the 360-plus other companies also listed on the JSE. “That’s 90% of the potential market you could invest in,” adds McLachlan.
McLachlan calls these companies with a small market capitalisation – businesses in the same position that our Top 40 companies once were, before they break through into the big leagues. “The non-Top 40 part of the JSE tend to grow faster than the Top 40, and generate higher investment returns,” he says. Plus they’re usually much cheaper, too. But this route means a high-risk investment that requires extra (and often extensive) research to help identify promising stocks.
This is also a long-term and volatile investment. Chances are, your investment will experience extreme dips. “The only way to manage this risk is to stand back from it, and allow time to smooth the returns,” recommends McLachlan. “In this sense, the day-by-day, month-by-month volatility becomes noise, and you get the premium returns offered by small caps on the JSE while avoiding many of the risks.”
He adds: “Just remember, you might find the next Capitec – but you may also lose all your money on the next Steinhoff.”
Happiness Boost/ Zero Profits
In an ideal world, we’d like to turn every saved randela into a future fortune. But the small change left over after our monthly pay cheque has been decimated by bond repayments, surprise car trouble and the resulting cost of restoring our collective sanity at the pub can be put towards something other than a future payday. A recent survey conducted by Ally Bank found that people were more likely to be happy with a savings account filled to the brim with easily-accessible funds.
According to the study, participants’ savings accounts gave them peace of mind, a sense of pride, and an overall sense of well-being – a perfect trifecta that translates into waking up every morning ready to kick ass. While in most cases the annual interest rate earned by a savings account will struggle to even tread water above inflation, it’s may still be worth setting aside your leftover funds; as this is one situation where money can definitely buy you a little happiness.
Roll Your Debt Snowball
A debt-free life may seem like a pipe dream right now – but that safe sanctuary, unfettered by the glaring red reminders of monthly payments, is within walking distance. The Debt Snowball Method was originally popularised by financial guru Dave Ramsey (you can tap into more of his useful money-saving info at daveramsey.com) as a way to win the war against piling up debt. It’s taken on many other forms (and names), but his simple take is still our favourite.
To start, save up R10 000 in emergency funds. Then, make minimum payments on all your debts except the smallest – this is where your leftover money will go. Debt gone? Move up to the next-smallest, and repeat the process. And it turns out that Ramsey’s intuition isn’t just gut instinct: a study published in the Journal of Marketing Research found that paying off smaller debts delivered an instant boost of motivation, increasing your likelihood of tackling larger, once seemingly unconquerable tasks. Think of it as squatting your debt – you have to do your warm-up sets first, and work your way up to a new PB.
No Effort/ Unexpected Returns
Don’t want to think about your investments? Your phone is your secret weapon. The recently launched Stash app connects to your card to create a passive savings and investment system. How it works: when you make a purchase on your card, the app automatically rounds up the amount and deposits the difference in a “piggy bank” (or, more accurately, invests that money in the stocks of South Africa’s 40 biggest companies on the JSE)
You get the growth of a unit trust fund without the pressure of having to actively move your hard-earned money from your account. And it works: according to the app’s creators, if you’d invested just R10 a day since the start of 2012, you’d have been sitting on over R23 000 by the end of last year. Find the app at stash.co.za (iOS and Android; compatible with cards from FNB, Standard Bank, Absa, Nedbank, Investec, RMB, Capitec and DiscoveryCard).
Trust The Unit
Putting your spare change to work on the stock market is possible. While you won’t be able to start and manage your own portfolio, a unit trust fund will allow you (and several others) to pool resources and still reap similar rewards.
With unit trusts, a trust manages a portfolio of stock securities; instead of investing in the stocks themselves, you’re investing in smaller, bite-sized and more affordable units. Many companies locally offer their own unit trust funds, with options ranging from lowrisk domestic money-market funds to highrisk domestic equity funds. At worst, a money-market fund will still outperform most annual deposit rates offered by your bank. At best, your spare change in a high-risk fund could turn into a luxurious retirement.
Your fund will benefit from a long-term investment; but because of the flexible nature of a unit trust fund, you can withdraw your investment in an emergency.
Warning: Huge Risks
Cryptocurrencies can crash and burn overnight. But for every online penny that nosedives into oblivion, there’s another newly minted crypto coin striking gold.
Exhibit A: In April, the EOS cryptocurrency climbed from R75 to a staggering R240 in just four weeks. However, in that same period hundreds of others either stagnated or regressed. Sites like the bitcoin exchange Coindirect now enable us South Africans to join the game, and a small deposit can net you a few coins (or fractions of a coin) to have a piece of the market. But picking the right coin is difficult. This new marketplace is saturated with a rotating cast of fresh currencies, and short on vital, useable information. Those who made it big betting on Bitcoin either spread their wealth, or just got lucky.
Related: How To Maximise Your Money
Bottom line: Crypto is here to stay. More and more sites and businesses are opening their doors to the rebel currency as a payment method, after currencies rebounded in the wake of big crashes last year. Global non-profit UNICEF even wants the good Samaritans among us to donate processing power towards mining bitcoins to help fund the charity’s work.