Noluyolo Betela. Supplied
To get into the habit of saving regularly, more than 11.5 million South Africans have joined savings clubs and stokvels. The National Stokvel Association of South Africa estimates there are more than 800 000 stokvel groups.

If you struggle to save each month, or find yourself regularly dipping into your savings, it may be a good idea to team up with people who want to save. As a member of a savings club, you commit to making regular contributions and are accountable to the other members. This can help to create a regular savings habit and get rid of the excuses that stand between you and your savings goals.

Traditionally, most savings clubs keep their members’ contributions in cash or deposit them into a bank account. The downside is that traditional bank accounts generally don’t earn enough interest to beat inflation, and the value of your money decreases over time.

Many stokvels are unaware that there are other options available in the form of investment products, such as unit trusts, which allow you to grow your money and earn returns that beat inflation in the long run.

Unit trusts provide savings club members with a number of benefits, including exposure to different types of assets and flexibility. Savings clubs can access their money in a unit trust investment at any time, there are no fixed or minimum investment periods, and you won’t pay any penalties when you withdraw. However, we encourage investors to take a long-term view and avoid making unnecessary withdrawals. This gives investors the chance to enjoy the benefits of compound interest, which is earning interest today on the interest your investment generated yesterday.

The returns generated by unit trusts aren’t guaranteed, and the value of your club’s investment may go up or down over time. If your savings group decides to invest in a unit trust, it is important to do research to make sure you choose a unit trust that matches your club’s goals. There are several types of unit trusts, which have different underlying investments and are appropriate for different time frames.

For example, if your goal is to save for something in the near future, such as the festive season, you will be looking to invest for about a year. This is a short-term goal, and your unit trust should protect your savings over this period. A low-risk money market unit trust might be suitable. If the goal of your savings club is to save for your children’s tertiary education, you would typically have an investment horizon of at least three years and should consider unit trusts that aim to achieve higher returns over a longer period, but carry more risk over the short term, such as a balanced fund.

Some savings clubs have more than one investment goal. In this case, you can split your investment contributions across more than one unit trust. Each unit trust would cater to the specific needs of each investment goal.

If your club is not comfortable making these decisions on its own, there is merit in consulting an independent financial adviser. An adviser will be able to look at the needs of your club and find the best investment solution, as well as the most suitable investment manager, for you.

Noluyolo Betela is client relationship manager at Allan Gray.

PERSONAL FINANCE