What to do with your Hajj 2020 savings

The South African Hajj and Umrah Council (SAHUC) recently announced that due to Covid-19 travel restrictions, South African Muslims will not be able to go on Hajj in 2020.

“If you have saved enough money to go on Hajj this year and you have, however, been deferred to 2021, you should probably invest your money in a more conservative way for the next year given the current market volatility,” says Maahir Jakoet, Portfolio Manager of Old Mutual’s AlBaraka Income Fund.

Approximately 3,500 South Africans were accredited to travel this year, with many having saved over many years to be able to afford the minimum four-week trip, which could cost anywhere between R75,000 to over R270,000 depending on the package the individual has chosen.

Questions of priority for these individuals include: should the Hajj money be treated as savings and left untouched? Or is it better to invest the money for the sake of higher returns? In short, what should you do with your Hajj money?

“Simply put, investing means buying assets with the expectation of growing your wealth. Assets could be stocks in companies listed on the Johannesburg Stock Exchange (JSE) known as equities, property, or sukuks known as Islamic notes,” says Jakoet.

Jakoet says deciding to save or invest depends on four key factors: time, liquidity, risk, and return. To get to grips with each of these factors and what they mean for you, Jakoet suggests considering the following questions.

1. How much time do you have?
“The first thing to do is establish your financial goal. One needs to ask: what do I want to do with this money and how many years will it take before this goal is achieved,” says Jakoet.

He suggests any goal that falls into a time frame of three to five years or longer makes it wise to look at an investment vehicle like a unit trust. “For short-term investment goals — for example, if an individual is considering going on Hajj three to five years from now — I would consider investing in a Shariah-compliant income fund. Income funds, in general, are more on the conservative risk spectrum, meaning that while it offers inflation-beating returns, the fund offers lower risk and access to your money at any time” explains Jakoet.

Jakoet admits that Covid-19 has put a spanner in the works for South African households and that many will need to rethink their finances. “For longer-term goals — like your child’s education or even retirement — it may be necessary to give these goals a boost, in which case a Sharia-compliant Balanced (Regulation 28) or Equity unit trust is more suitable,” he says.

2. Do you need immediate access to the money?
“How quickly investors can access their money without incurring a penalty is an important consideration that will rule out many savings vehicles,” says Jakoet.

If you are building an emergency fund, for example, this is a particularly important consideration.

“One of the benefits of the Old Mutual Albaraka Income Fund is that it offers investors stability through extreme volatility. This means that money invested in the unit trust is ring-fenced (it doesn’t form part of the balance sheet of your financial services company) and doesn’t react to stock market crashes in the same way that Balanced or Equity funds do, thus offering the investor a more consistent return path,” says Jakoet.

3. What is your tolerance for risk?
“Risk is closely linked to time because, while you might experience some losses as financial markets move up and down, you should make healthy returns over the lifespan of your investment – typically over several years,” says Jakoet.

“The best way to manage this risk is to remain invested for longer. As soon as you extend your holding period for more than five years, the chance of losing money becomes negligible.”

4. What is your expected return?
“Over the long term, investing almost always trumps savings in terms of returns. This is because exposure to assets like equities, property, and sukuks (Islamic notes) outpace the gradual increase in the cost of living over time (known as inflation) – which is the real enemy of the investor,” says Jakoet.

“This is naturally provided that you have the discipline to stay the course — that is, to invest the money into a unit trust and leave it there.”

“While Covid-19 has brought many disruptions, it also offers opportunities to build a more financially resilient household,” concludes Jakoet. “Deciding to invest — be it for Hajj, for retirement, or for any other financial goal — is an important part of strengthening your budget’s ability to withstand an uncertain climate and, by extension, protect your family’s future.”