Why insure and invest?

A restaurant, nightclub or tavern is largely a cash business, and for many business-owners in this industry, cash in hand is what counts. It’s tangible, it’s immediate, and it’s cheaper than paying the transaction fees associated with keeping a card machine.

So why should you put your hard-earned cash towards insurance plans and investments – especially when it feels like you’re not really getting anything in return?

A smart business owner plans not just for the short-term (like monthly payments to suppliers), but also for their financial future. In other words, now that you are making money, you need to start thinking about how to grow your money with the right types of risk cover or insurance plans.

In this issue of Spotong, we’ll focus on investing first.

Growing your money

What this means is that there is no such thing as a quick buck when it comes to investing your money. If someone promises you unbelievable returns – for example, 30% of your original investment back within 12 months – chances are that this is too good to be true.

Here are three simple ways you can start investing immediately:

• Open a notice deposit account. This is a safe bet to grow your money – you can deposit either a lump sum or schedule a money debit order – but the interest you will earn over time is rather low, with rates anywhere between 2% and 8%. In order to access your money, you need to give notice (anything from 72 hours to 30 days, depending on your bank and which notice account you signed up for).
• Buy unit trusts. A unit trust fund is a collective investment scheme, meaning that a number of people pool their money in a fund, that then buys and sells shares, cash or bonds on their behalf. According to a recent investigation by Moneyweb.co.za, South Africa’s best performing funds over the last five years are: the Foord Equity Fund, the Harvard House BCI Equity Fund, the Sasfin MET Equity Fund, and Momentum Best Blend Specialist Equity Fund, all with just over 20% annualised total return over five years. You can either approach these institutions directly to invest, or do so through a financial consultant.
• Discover exchange traded funds (ETFs). In recent times, your bank might be encouraging you to sign up for “ShareSaver” or “MoneyMarket” accounts – these are essentially ETFs. ETFs are similar to unit trusts in that you buy into a “basket” of shares that your bank has bundled together into one product for you to invest in. Dr Vladimir Nedeljkovic, Head of Exchange Traded Products at Absa, explains: “You can put an investment plan in place, whereby you set up a debit order and invest monthly, which is convenient. In my personal opinion, ETFs can make up 100% of your portfolio, as long as they are not all in a single asset class.” In other words, diversify by investing in ETF funds that are in different industries.

 What would you give to someone who has just started building a portfolio?

First, don’t try to time the market and wait for share prices to be at their highest before selling or at their lowest before buying. Second, don’t put too much emphasis into buying certain stocks. The keys are consistent investment and diversification. – Dr Vladimir Nedeljkovic, Absa

Be prepared for a financial emergency

What if you are in an accident that leaves you unable to work, and your family needs to unlock your disability benefit? Or worse, they need the policy number for your funeral plan? Create a folder called ‘Important Documents’, and put copies of the following in it:

• Birth certificate, identity document and marriage certificate
• Your policies: life insurance, medical aid, vehicle insurance, funeral policy etc.
• Your investments: share certificates, pension fund or retirement annuity details etc. as well as any recent statements that reflect how much these investments are worth.
• Banking details, such as your account numbers and at which banks your accounts are held.
• Final will and testament (signed and witnessed)
• Your SARS-issued personal tax number
• Make sure that your loved ones know where you keep this file.

If you are in a business partnership, create a second folder that contains your partnership agreement, official company documents, latest tax clearance and BEE certificates, business insurance policies and your SARS-issued business tax, VAT, UIF and PAYE numbers.

Protecting your money

“Sadly, we only realise the importance of having insurance and financial planning after a life-changing event,” says Kgomotso Masongoa, financial advisor of Discovery.

Look out for the next issue of Spotong, where we focus on what types of basic insurance you need in your personal capacity and as a business owner, and how to calculate how much you should be paying.