How to Unlock Your Future Financial Potential with ETFs

Making smart financial decisions early in life isn’t just advisable – it’s essential. A recent Sanlam Finances Through the Life Stages survey of over 5 000 South Africans highlights this urgency, with 54% of respondents saying they would advise their younger selves to view money as an asset to grow, not a luxury to spend. Fikile Mbhokota, CEO of Satrix, explains how exchange-traded funds (ETFs) can be powerful tools for individuals looking to maximise their long-term returns.

“While traditional savings methods have their place, supplementing your savings strategy with ETF investments can help your money work harder for you. These investment vehicles ensure you're not just putting money aside but give it the potential to grow and compound over time, helping you reach your long-term financial goals more effectively.”

Understanding the Difference Between Saving and Investing
Mbhokota points out that while saving and investing are both crucial components of a sound financial strategy, they serve different purposes and come with distinct characteristics. Understanding this difference is key to developing a well-rounded approach to managing one’s finances:

• Saving typically involves setting aside money in low-risk, easily accessible accounts like a traditional bank savings account or money market funds. The primary goal of saving is to preserve capital for short-term needs or emergencies. While savings offer security and liquidity, they generally provide lower returns, especially in low-interest-rate environments. 
• Investing involves putting money into assets like shares, bonds, or ETFs for potentially higher long-term returns. While investing comes with more risk and potential for short-term volatility, it also offers the opportunity to grow your money and protects against inflation. 

“By incorporating saving and investing strategies, like using traditional savings for short-term goals and ETFs for long-term objectives, South Africans can create a balanced financial plan that addresses immediate needs and future aspirations.”

ETFs Unlock the Power of Compound Interest 
Mbhokota says South Africans should think of an ETF as a shopping basket that allows them to buy a little bit of many different investments at once, diversifying their risk and simplifying their investment journey. “Some ETFs, like those offered by Satrix, offer a much cheaper form of investing for the long term, allowing you to invest for as little as R10 through fractionalisation.”

Fractionalisation allows investors to purchase a portion of an ETF unit, making it possible to invest small amounts regularly even if the entire unit price is higher than what someone can afford. Additionally, because they’re so transparent, South Africans can easily track their investments' performance to see how their money grows over time. 

She adds, “This accessibility makes them an excellent option to diversify your savings strategy beyond traditional methods. An advantage of incorporating ETFs into your savings strategy is harnessing the power of compound interest. When you invest in ETFs, you're potentially earning returns on your initial investment and on the returns that investment generates over time – your money essentially makes “money babies”. This compounding effect can significantly accelerate wealth accumulation, especially over the long term.”

ETFs for Different Savings Goals
One of the strengths of ETFs is their versatility in meeting various savings goals. Mbhokota recommends considering the Satrix Access Range for those just starting their investment journey. 

She explains, "This range is designed specifically for first-time investors or those who prefer simplicity in their choices. It includes four funds catering to various investment time horizons and risk appetites through low-cost local, global, or multi-asset exposure. This makes it an excellent starting point for those looking to dip their toes into index investing, combining ETFs and index-tracking unit trusts.”

Mbhokota outlines several types of ETFs first-time investors can consider:

• Money Market ETFs: These are suitable for those who want to save with minimal risk and need easy access to their funds. They typically provide lower returns but offer stability.
• Balanced ETFs: These invest in different asset classes, providing a mix of growth potential and stability.
• Local Equity ETFs: These invest in a basket of shares on the local Johannesburg Stock Exchange, offering low-cost exposure to the South African market.
• Global Equity ETFs: These provide exposure to international markets that individuals won’t find at home, offering new sources of return and diversification to investment portfolios.

“By choosing the right mix of ETFs, you can tailor your savings strategy to your specific goals, whether saving for a house deposit, your children's education or retirement.”

The Role of Education in Savings Diversification
Mbhokota also highlights how crucial financial education is in navigating the investment market so South Africans are better equipped to make informed decisions. She says this education can take many forms:

• Self-education through educational resources provided by ETF providers like Satrix
• Attending financial webinars and workshops
• Engaging with financial advisers 
• Joining online savings or investment groups. 

Starting Your ETF Investment Journey
Mbhokota offers some practical advice for South Africans who are ready to diversify their savings strategy by investing in ETFs:

1. Start Small: “With low minimum investments, you can start with whatever you can afford.”
2. Be Consistent: “Regular, consistent investments can help you benefit from compound growth.”
3. Use Available Resources: “Take advantage of educational materials and tools provided by ETF issuers.”
4. Seek Professional Advice: “Consult with a financial adviser who can help tailor a strategy to your specific needs and goals if you’re unsure or have any questions.”
5. Review and Adjust: “Regularly review your investment strategy and adjust it as your goals or circumstances change.”

A Balanced Approach to Investing in Your Future
Mbhokota says diversifying a financial plan with ETFs doesn't mean abandoning traditional savings. Instead, it's about creating a balanced approach that combines traditional savings stability with the growth potential of ETFs.

She concludes, “Incorporating ETFs into your savings strategy is a significant step towards a more secure financial future. You're not just saving – you're investing in your future self. Remember, the journey to financial well-being is a marathon, not a sprint. By investing ETFs, you're equipping yourself with the tools to go the distance and reach your long-term financial goals.” 

Disclaimer

_{Satrix Investments (Pty) Ltd is an approved FSP in terms of the Financial Advisory and Intermediary Services Act (FAIS). The information does not constitute advice as contemplated in FAIS. Use or rely on this information at your own risk. Consult your Financial Adviser before making an investment decision.
Satrix Managers (RF) (Pty) Ltd (Satrix) is a registered and approved Manager in Collective Investment Schemes in Securities.
While every effort has been made to ensure the reasonableness and accuracy of the information contained in this document (“the information”), the FSPs, their shareholders, subsidiaries, clients, agents, officers and employees do not make any representations or warranties regarding the accuracy or suitability of the information and shall not be held responsible and disclaim all liability for any loss, liability and damage whatsoever suffered as a result of or which may be attributable, directly or indirectly, to any use of or reliance upon the information.}