Duma Mxenge | Head of Business and Market Development | Satrix | mail me |
Could exchange traded funds be South Africa’s next big retirement trend? As people plan for retirement, exchange traded funds (ETFs) can be a smart choice. They are liquid, cost-effective, and an easy way to diversify your investment portfolio.
ETFs can be a great addition to your long-term savings or retirement plans, working alongside your regular retirement fund. While traditional retirement products give you a steady income, standalone ETF investments can provide extra cash when you need it.
What is an ETF?
An ETF is a collection of securities that follows the performance of an underlying index, like the FTSE/JSE Top 40 Index, or an asset class such as property. After identifying your risk profile and selecting a suitable ETF or combination of ETFs to match your profile, you can make a lump-sum investment or automate your monthly investing through a recurring investment.
Continuing to do this over the long term allows you to benefit from rand cost averaging, which means that your money buys more units when markets are down and fewer when they are up. This approach helps to reduce the overall cost of your investment over time.
How to choose the right ETF?
If you’re investing on your own, knowledge is crucial. It’s essential to know your goals and timeline when investing.
Decide if you’re saving for the long term or need to access funds sooner, as different ETFs focus on growth or income. Understanding your risk tolerance is also important – higher returns often come with higher risk, but if you prefer stability, there are more conservative ETFs available.
Retirement planning
Saving for retirement is essential, regardless of your current career plans. Starting early allows you to save a manageable amount, as the sooner you begin, the less you’ll need to contribute monthly to reach your retirement goals.
Life can be unpredictable, so building up savings offers peace of mind and options for the future. In a rapidly changing work environment, having savings allows you to adapt to new opportunities without financial stress. Additionally, as we live longer, we must consider the rising medical costs that come with age, making it even more important to prepare for retirement.
How do ETFs help savings?
Having flexible, liquid investments is wise. Options like Tax-Free Savings Accounts (TFSAs) and ETFs can…
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Read the full article by Duma Mxenge, Head of Business and Market Development, Satrix, as well as a host of other topical management articles written by professionals, consultants and academics in the February/March 2025 edition of BusinessBrief.
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