For an effective savings and investment strategy, balance is key

Market commentators agree that all the signs point to South Africa’s economy gradually recovering in the coming months. Assuming this is the case, many people will find themselves with increased discretionary income as a result of their cost cutting efforts and more cautious spending habits over the past few years. 

According to Babalwa Nonkenge, Head of Retail Investments at Nedbank, the economic shifts taking place present a prime opportunity to reassess and strengthen your personal saving and investment strategy to make sure your money grows well for you in the coming months and years. However, she cautions that following the same conservative strategy with your savings as you have been with your spending in recent years isn’t always the best approach to maximise that growth. 

“While it’s natural to be conservative with finances in uncertain times, an overly cautious approach to saving and investing can limit potential growth,” Nonkenge explains. “The key lies in striking a balance that protects your financial present while nurturing your future.”

She emphasises that a balanced savings and investment portfolio is crucial for long-term financial health, regardless of economic conditions, and suggests that it should encompass at least three key components, namely an emergency fund for immediate and unexpected needs, savings for short- and medium-term goals, and investments for long-term objectives. This approach ensures you’re prepared for unexpected expenses while still positioning yourself for future financial growth.

“In today’s economic climate, it’s tempting to focus only on protecting your immediate financial security,” Nonkenge says, “but a truly effective strategy addresses your current needs and future aspirations. By allocating resources across these three areas, you create a robust financial foundation that can weather various life stages and economic conditions.” She unpacks these three savings strategy components as follows: 

Your emergency fund should be easily accessible and low-risk, even if it means you have to sacrifice some returns in favour of liquidity. She suggests aiming over time to save enough to cover 3 – 6 months of living expenses in a savings account and highlights Nedbank’s new JustSave account as an ideal choice. “Nedbank JustSave has no minimum opening balance, no monthly fees and gives you instant access to your money,” she says, “and with competitive interest rates of up to 8% per annum, it’s not only a great way to save for emergencies, but it also provides outstanding growth potential over time.”

Short- and medium-term goals are the objectives you want to achieve within the next few years. To save effectively for these, Nonkenge suggests considering savings and investment options that offer a balance between accessibility and growth. “Nedbank’s JustInvest account is an excellent choice, offering competitive interest rates of up to 8.75% for the first three months (as of August 2024) and requiring only 24 hours’ notice for withdrawals,” she points out.

For long-term goals, you can afford to take on more risk for potentially higher returns. Diversification is key here, and your plan may include a mix of fixed-term savings to maximise interest, as well as investments in stocks, bonds and other investment vehicles. Nonkenge says that Nedbank offers several options to help long-term savers put together such a strategy at any point in their lives. “The OptimumPlus Investment Account for seniors (55+) provides guaranteed returns of up to 11.70% at maturity,” she says, “while the Nedbank Tax-free Fixed Deposit Investment Account allows you to earn up to 9.21% interest at maturity, tax-free.”

While these components form the backbone of a balanced savings and investment portfolio, Nonkenge explains that the specific allocation of your money to the various goals and savings vehicles will depend on your individual circumstances. Factors to consider include your age, income stability, short-term goals and risk tolerance. “Generally, younger people can afford to take on more risk with their long-term investments,” she says, “while those with variable incomes may need larger emergency funds. If you have significant expenses coming up in the near future, you may need to allocate more to your short-term savings.” 

Most importantly, a balanced savings strategy gives you peace of mind from knowing you’ve got a plan in place to cover all your goals and needs over all time periods, and according to Nonkenge, that sense of security is very important in preventing you from making rash financial decisions when you face unexpected life events.”

She says the final key to success is to regularly review and adjust your strategy as your circumstances change. “What works for you today may need tweaking in a few years’ time; but irrespective of what the future may hold, a balanced savings strategy will always help you make the most of your money and ensure you’re prepared for whatever tomorrow may hold.”