Stokvels: From saving to investing

29 March 2016

Stokvels have existed in southern Africa since the early 19th century, but their structure and means of operating have changed and developed with the passing of time.

Built on the African ideal of the importance of ‘community’ and ‘supporting one another’, it is estimated that today there are over 11.4 million individual stokvel members in South Africa alone, illustrating just how popular this method of saving has become.

If you’re one of the many South Africans already using the stokvel system as a means of saving money, it might be time to think about how you can adapt your stokvel for your own needs, making it stretch further and work harder for you. Rather than seeing your stokvel as a system that results in one-off payments for large cash purchases or events, taking your money from simple savings to long-term investments can result in larger rewards and bigger benefits.

Here are some of the top options when deciding to branch out from a savings club to an investment club.

Unit Trusts

Unit trusts are of the simplest and easiest ways of investing in your future. Much like a Club Account or Stokvel, Unit Trusts involve many individuals working together, where your savings are combined with that of many others. Because Unit Trusts are essentially collective investment schemes, the risks generally associated with investing in the stock market are significantly reduced as the money is distributed across a variety of shares or diverse types of investments. Think of it like going to your favourite restaurant where you like absolutely everything on the menu. Luckily you don’t have to choose, as you can get a plate that has a little bit of every dish on it. By getting a bit of everything, your risk is reduced and your choice is diversified, making your meal a much safer bet than if you’d just order one thing. Your unit trusts are managed by an investment professional, and they’re both cost effective and easy to access.

ETFs (Exchange Traded Funds)

Much like a Unit Trust, ETFs are also collective investment schemes where your money is pooled with that of other investors. However, while Unit Trusts are made up of set stocks across a variety of sectors, ETFs can change constantly depending on share performance. For example, you can choose to invest in an ETF that’s constantly made up of the top ten tech companies. As stocks move in and out of the top ten, your portfolio will change, making it variable and dynamic. And unlike a Unit Trust, there’s no fund management involved, so not paying for an investment professional means that an ETF could be a cheaper investment option. So, as the most popular meal at the restaurant changes, so does the food on your plate, meaning that you’re more likely to always be trying the finest food.

Ultimately, both Unit Trusts and ETFs are good investment options, because you can expect a higher return while still maintaining the ‘safety in numbers’ aspect of your Stokvel. Rather than saving for the short-term, turn your stokvel funds into a long-term investment with a higher reward.

Disclaimer: The advice contained on this blog is for general purposes only and does not take into account individual circumstances, objectives or financial needs. Accordingly, readers are advised to seek appropriate advice from licensed professionals prior to making any investment, or taking up a financial product or service.