Nicolette Dirk, finance writer, Justmoney.co.za
A new debit order investment or an increase to an existing debit order is one of the easiest ways to boost your savings. This is according to Nick Battersby, chief executive at PPS Investments.
“The minimum amounts required for debit order investments are generally manageable, and by adding to your portfolio on a sustained and regular basis you could accumulate a significant investment over time,” said Battersby.
Why should you consider debit order investments?
You’re taking charge
Battersby said a debit order bumps your investment to the top of your priority list. It takes care of the temptation to spend what you should be saving on something else, or to tweak your savings goal if your budget starts tightening before payday.
“While you’ll be saving with discipline, a unit trust based product also gives you the flexibility to adjust your debit order premium if your personal circumstances change,” said Battersby.
So should you be faced with unexpected monthly expenses, you will be able to lower your debit order premium to a product-specific minimum amount or, in some cases, to cease your premiums altogether. Conversely, should you find that you have more available to save, you can easily increase your monthly premium and in this way ensure that your contributions are keeping pace with inflation.
The power of compounding
Compounding occurs when investment returns are added to your original investment and these returns then start earning returns as well. Effectively, this allows you to generate returns on additional amounts that haven’t come out of your pocket. Battersby said that as your investment grows you will earn returns on an increasingly larger investment.
Market fluctuations smooth out over time
Your debit order will buy a fixed rand amount of the unit trusts you have chosen to invest in every month.
“This means that when the market has risen and units are more expensive, your monthly investment amount will buy less. Similarly, when the market has fallen and units are less expensive, you will receive more units for the same rand amount, said Battersby.
This way you minimise the risk of investing substantial amounts when units are expensive and you won’t have to monitor the markets in order to time your investments tactically.
According to Battersby for investors with lump sum investments only, the addition of a manageable monthly debit order could build a substantial additional investment over time. “For investors with debit order investments already in place, an increase to your monthly premium could have a significant impact on the ultimate outcome of your investment,” said Battersby.