Guiding consumers since 2009

Should you save or invest your money?

By Athenkosi Sawutana

A prominent question when planning finances is whether you should save or invest your money.

While saving means putting away cash for future use, investment involves purchasing assets which will yield good returns in the future. These assets include, but are not limited to, shares, property, mutual funds, and bonds. Usually, people save for emergencies or to purchase items that they can’t currently afford.

 Tip:  To avoid temptation, ensure that your savings are automated.

Justmoney spoke to Jan van der Merwe, head of actuarial and product at PSG Wealth about the factors that help you differentiate between the two options.

Time is of the essence

Van Der Merwe says you must think of savings as putting money away with a short-term view. Investing, on the other hand, is a long-term exercise where you aim to grow the real value of your money – in other words, its buying power.

 Investing is aimed at keeping pace with inflation over time. Cash can’t keep up with inflation, especially when you look at it over the long-term. 

According to Van Der Merwe, cash or cash-type investments can be a good option if you save for a shorter period or need to plan for significant cash flows related to specific expenses.

“If you want to save for two years, you might consider saving in an easily accessible bank account that earns you some interest, or you might invest in a unit trust where there is slightly less volatility, such as in a money market fund,” he says.

However, if you have more time – that is five years or more – putting money towards your retirement, and investing in a good pool of growth assets, is likely to give you a better outcome over the years than just keeping your cash in the bank.

What are the risks?

The risks depend on your time horizon and asset exposure, says Van Der Merwe.

“Saving in a bank account is like holding on to cash in an account instead of in your wallet,” he says.

As inflation creeps up, you won’t be able to buy the same items if your cash isn’t growing.

Growth assets, such as shares, tend to outpace inflation in the long-run, but they can be volatile – and you may see the value of your investment decline in the short-run.

Van Der Merwe says you need to understand this risk and find a balance between the different types of assets that work for you.

He says it’s best to have both easy access to cash funds to help with unforeseen expenses and long-term funds that can grow more aggressively to help secure your financial future.

Can you access your money easily?

According to Van Der Merwe, you need to consider whether the financial products you’re invested in will give you access to your money at any time.

There is a wide array of financial products available, and each has its advantages and disadvantages.

“While ensuring the long-term growth of the assets in your portfolio is key, so is having a portion of your investments in easily-accessible investments to cover unforeseen expenses,” says Van Der Merwe. 

For instance – if you choose a retirement annuity (RA), you won’t be able to easily access your funds until age 55, unless the capital amount is under a certain threshold or you’re emigrating. Other investment products, such as a unit trust have more flexible access.

Are there minimum or maximum contributions?

The amount you need to save or invest will depend on the product you’re using and what you’re putting money aside for. For instance, saving in a bank account might not have any limit, says Van Der Merwe.

However, when you’re investing, there could be a minimum monthly amount that you need to contribute.

When investing in a retirement annuity, a unit trust, or a Tax-Free Savings Account (TFSA) most of these products will require a minimum monthly debit order to get started,” says Van Der Merwe.

He advises not to get discouraged by a minimum monthly requirement.

Once you get started, you can also pause contributions and allow your investment to earn interest on itself, which continues to grow. This is called compound interest.

According to Van Der Merwe, there may also be maximum contributions to keep in mind when investing which are in line with tax efficiency.

“With a TFSA, you can only invest R500,000 in your entire lifetime with R33,000 as the cap per year, and investing more in this product attracts very high tax rates,” he explains.   

In an RA, you can invest up to 27.5% of your monthly income – up to R350,000 per year – tax-free. You can invest more without penalty, but you’ll pay tax. Plus, you can also make additional lump-sum contributions if you want to, he adds.

The returns you can expect

The mix of assets you invest in will determine the eventual return you can expect.

While the return of cash-type investments tends to be more predictable, the return from growth assets tends to be more uncertain in the short-run, but higher over time. 

The best option for you will depend on your investment objective, timeframe, willingness, and ability to accept the risks that come with investment, says Van Der Merwe.

He says that sticking with cash might be the best for a shorter period return because you won’t lose any of your actual capital.

To speak to an adviser who can help you choose the best investment options, click here.

Recent Articles

Featured What to do when you’ve been denied a home loan

After months of scanning property sites and attending showhouse after showhouse, you’ve finally found what you’ve been looking for. But your dream of owning a home comes crumbling down when you receive the news that you’ve been denied a home loan. So, what now?

Can your retirement annuity be used as collateral for a loan?

If you have a retirement annuity, you may have wondered whether you can use this as collateral when you take out a loan. We decided to do the leg work and find out whether this is possible or not.

Best travel cards offered by top South African banks

Planning a trip abroad involves a lot of administration. You need to consider travelling arrangements, reasonable accommodation, and a daily itinerary. But have you considered how you’re going to pay your bills once you arrive? Besides considering bank costs, you also need to consider exchange rates.

Best ways to save your money short-term

For many, it seems close to impossible to save when spending on holiday getaways, Christmas gifts, while also trying to ensure there’s money left to survive January. Justmoney takes a look at the best ways you can save during the short term.


Marble Gift Card Special

Price: From R1000
When: Until 25 December 2019
Where: Johannesburg

Trennerys Hotel and Camping Januworry Special

Price: R950
When: From 10 to 31 January 2020
Where: Centane (Eastern Cape)

Bakwena Standard Packages Special

Price: From R999
When: Until 31 December 2019
Where: Nationwide