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Wednesday, August 27, 2014 - 02:16
Discipline helps

It is probably fair to say that most of us would like to be saving more. However, by the time we get to the end of the month it may seem that there isn’t all that much left to save.

For this reason, says Nick Battersby, Chief Executive: PPS Investments, “It might be a good idea to take a fresh look at your budget and your monthly savings habits. If you’re looking to boost your savings, the easiest way to do so is to consider a new debit order investment or an increase to an existing debit order.” The minimum amounts required for debit order investments are generally manageable, and by adding to your portfolio on a sustained and regular basis you could accumulate a significant investment over time.
Three reasons to consider debit order investments:
• You’re taking charge. A debit order bumps your investment to the top of your priority list. It takes care of the temptation to spend what you should be saving on something else, or to tweak your savings goal if your budget starts tightening before payday.
While you’ll be saving with discipline, a unit trust based product also gives you the flexibility to adjust your debit order premium if your personal circumstances change. Should you be faced with unexpected monthly expenses, you will be able to lower your debit order premium to a product-specific minimum amount or, in some cases, to cease your premiums altogether. Conversely, should you find that you have more available to save, you can easily increase your monthly premium and in this way ensure that your contributions are keeping pace with inflation?
• The power of compounding. Compounding occurs when investment returns are added to your original investment and these returns then start earning returns as well. Effectively, this allows you to generate returns on additional amounts that haven’t come out of your pocket. As your investment grows – from further contributions and investment returns – you will earn returns on an increasingly larger investment. In fact, Einstein himself referred to compounding as the “most powerful force in the universe”!
• Market fluctuations smooth out over time. Your debit order will buy a fixed rand amount of the unit trusts you have chosen to invest in every month. This means that when the market has risen and units are more expensive, your monthly investment amount will buy less. Similarly, when the market has fallen and units are less expensive, you will receive more units for the same rand amount.
You therefore get an average cost per unit over time. This means that you minimise the risk of investing substantial amounts at an inopportune times (when units are expensive), while also not having to monitor the markets in order to time your investments tactically.

Says Battersby, a debit order investment may therefore present several advantages. For investors with lump sum investments only, the addition of a manageable monthly debit order could build a substantial supplementary investment over time. For investors with debit order investments already in place, an increase to your monthly premium could have a significant impact on the ultimate outcome of your investment.

Copyright © Insurance Times and Investments® Vol:27.8 1st August, 2014
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