Make your money work for the future

Capital at risk. The value of investments and the income from them can fall as well as rise and are not guaranteed. Investors may not get back the amount originally invested.

The rewards of investing in stocks and shares may outweigh any potential risks.

If you’ve been hoarding cash at home, inflation will do its best to devalue it, so it could be time to rethink your saving strategy.

We live in uncertain times – the COVID-19 pandemic and Russia-Ukraine conflict in Eastern Europe have affected supply chains, prices and, crucially, inflation – and this tends to make everyone tighten their belts and migrate to the safety of cash. However, simply keeping it under your mattress or in a savings account leaves it vulnerable to inflation.

Inflation measures how quickly the prices of everyday goods and services change, it was running at 5.3% in South Africa in January 2024.1This means that, on average, the cost of food, fuel and even a simple haircut is considerably higher than it was this time last year. If prices rise quickly and wages don’t keep up, you can’t afford to buy as much.

To combat inflation, central banks often raise interest rates to discourage borrowing and spending. When people spend less and demand for goods and services decreases, suppliers may lower their prices, which helps to mitigate inflationary pressures. Even though the South African Reserve Bank's Monetary Policy Committee maintained its base rate in January 20241, savings rates offered by banks may not be sufficient to counter rising prices, so it could be worth investing instead.

It’s never too early to start investing because it’s time in the market that counts (rather than market timing). If you can afford to save a little each month, you could invest in your future by making a regular contribution into an investment account.

People are often wary of investing when the markets are volatile, but this can be a great time to move in and buy when prices are low.

There is strong evidence that investments deliver higher returns than cash, but investors must be prepared to lose money in the short term because markets can react to global events, recessions and conflicts. To get the most from your investments, it’s better to have a long-term strategy.

As investors gain knowledge and confidence in the markets, they might branch out from holding a diversified portfolio of UK and US companies to include more volatile sectors like emerging markets. There is still risk attached to any investment but, as investors become more experienced, they might be more comfortable taking a little more risk in the knowledge that they could see higher returns.

Risk: Emerging market investments are usually associated with higher investment risk than developed market investments. Therefore, the value of these investments may be unpredictable and subject to greater variation.

1 Source: South African Reserve Bank, 31st January 2024