Why do we need to invest? - I want to own a Maserati by the time I reach 25, impossible?

We are usually advised by our parents to save as much money as possible and many of us either don’t believe in or commit to saving or don’t understand the benefits and this very often results in us leaving it up to the last minute, resulting in time and m

Statistics show that South African’s have a bad track record when it comes to savings with the current savings rate standing at a measly 16.4%. It is therefore never too early or too late to start taking control of your finances – no matter what your age. And whilst we understand that you want to drive a Maserati and would like to know how to become a millionaire on a starting salary; in order to get there you need to begin the process of building your wealth and therefore, it is never too early or too late to start the walk on life’s wealth creation path - you say impossible, we say try!

Numbers don’t lie and the reality is that most of us strive to live a comfortable life during our adulthood. But how do we get there and more importantly how do we make sure we stay there? Many people will provide you with many solutions but one simple and effective answer is to invest in the stock market. Most of us know what saving is and how important it is, but we need to take this one step further and look at what we do with the money we have saved. While this may sound easy, it takes hard work from your side to do the research, taking the time to understand the stock markets and to ultimately become a stock market ‘fundi’.

According to Nico-Louis Minnie, an investment specialist at Liberty, "You have to invest to create wealth and investing in the stock market gives attractive returns." He adds, "Over the longer term you can expect growth in excess of what you get in a bank account. Bank accounts are great, but serious wealth lies in stock markets.”

An important point to keep in mind is that investing takes time and that's one thing when investing young, you have an abundance of. Understand that nothing in life is guaranteed, however, considering to invest in the stock market is a good starting point which will kick-start the process of creating your own wealth, with the potential of offering you great returns and your dream car or maybe even your own island!

Minnie suggests a minimum of a three to five year view in order to manage the risks within the stock market. In truth, the more time you give your investment, the better your profits are likely to be; use the time for consistent investing either directly or indirectly (investment products such as unit trusts, exchange traded funds and life insurance policies). We cannot just jump in and expect to be rich overnight; we need to always be saving and then move our excess savings into the stock market.

Different investments will have their day to shine - but over the long term - stocks almost always come out ahead as the best performing investment class. Over that long term the stock market has returns of around 18% a year (doubling your money every four years over the last 20 years) while other assets such as property are closer to 11% and cash around 8%. With enough time, even a crisis is not a crisis as the market has already achieved new highs after having lost over 40% during 2008 and 2009. In other words, it is as if the financial crisis of 2008/9 never happened.

So how do we start? Minnie points out that, "Investing is putting money into something physical, like a company, a bridge, a train, etc. In other words investing is not so hard because when we invest we are actually buying a piece of a company - or little slices of large successful organisations - that many of us already know and make use of, such as Standard Bank, Spar, Clover, MTN, and the likes of.”

When investing in large companies that we know, it is still important to educate ourselves about managing the risks, different products, strategies and assets available on the market. Nothing about investing is rocket science, it is rather a lot of common sense (unfortunately common sense is often not so common), but we still need to know the basics.