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Savings clubs – Perhaps time to consider as an alternative?

The National Stokvel Association of South Africa estimates that there are well over 800 000 stokvel groups in South Africa. Over 11.5 million South Africans have joined savings clubs and stokvels. These statistics show that savings clubs encourage investors to remain disciplined and committed to saving each month.

In a recent press release, Noluyolo Betela, client relationship manager at Allan Gray, expands on how a savings club can help individuals to reach their financial goals as well as the investment options available for savings clubs.

Traditionally, most savings clubs keep their members’ contributions in cash or a bank account. The downside of this option 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 not aware that there are other options available to them in the form of investment products, like unit trusts, which allow you to grow your money and get returns that beat inflation in the long run”, Betela advises.

One of the options that Betele unpacks is investing in unit trusts as it gives savings club members 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”, she mentions. “This gives investors the chance to enjoy the benefits of compound interest, which is earning interest today on the interest your investment generated yesterday”.

With cash outperforming most other options for the past few years, this might be a valid alternative until you are sure whether the light at the end of the tunnel is not a train heading your way.

Click here to read more about stokvels – a good download for both financial adviser and client.

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