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I live in South Africa, and the country is not exactly going in a good direction. I am 24 years old. I would like to start investing in something for my future.

  • One option is to get a pension fund. This has good tax benefits but I don't like the fact that I can't use the money for 40-ish years (because I don't think SA would look good in 40-ish years, and most probably I will leave by then)
  • Another option is to buy myself a house (because then in 25-ish years I will not have to pay rent to someone else anymore, and I have a place to live if I lose my job)
  • Another option is to pay off all my debt, but I don't have any so that is good.
  • Investing in assets and the market is one plan, but I feel like this would be a big gamble for someone with no knowledge in investing. I feel like I am better off just losing my money to inflation (like explained below)

My bank's current return is 5% on the money lying around. I can fix that for around 8% (which is good, but I am not really winning inflation here anyways)

My problem is, I am saving money in my bank. Which is bad because with inflation that actually means the money lying around is costing me. So what should I do with that money (and a bit every month)?

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If you have access to the stock market, a low-cost index fund is almost always a good bet. These reduce your risk over buying individual stocks, while matching the market in general. And all without requiring any real knowledge or ongoing attention. (Low-cost is important, though. You don't want your earnings eaten up by percentage fees.)

Now, because you live in a country that's not doing that well, my specific recommendations are:

  • Don't invest in your native currency (if you can). Conversion of currency usually costs a percentage, but gets you away from the inflation you're worried about.
  • If you feel you might need to leave the country at some point, figure out a destination and a plan now. Immigration can take years, and it's best to get started sooner rather than later. (It also costs money, so be sure you have the appropriate amount set aside.)
  • Needing to leave the country also means housing may not be a good investment. Not only will it fall in price if the situation deteriorates, but you'll have trouble finding buyers, and you can't take it with you if you leave the country. The question is how long do you expect to stay in the country? Housing makes more sense if you can hold on to it for 10 years, but I'm not sure how urgently you intend to leave the country. (Another option is to keep an eye open for any particularly good deals, but not worry if you don't find any.)
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Would try to pay off debt - in case you do not need it, it is often the most expensive money, so you can get best profits comparing to savings. House is probably a good idea, but depends on price(s) - in case they are too high, they may drop then and probably also rent costs.

Gold is not good idea at all - very long term and quite volatile - does not look like safe heaven anymore (example USDJPY pair where dollar has similar reputation like gold and JPY is a carry trade currency works probably better ;-) )...

I would suggest a DCA as investment method and focus on interesting big indexes (US?) or difference between some (like buy US and sell your local, etc.).

  • Or you can combine them with USDJPY or OIL as hedge, but check also costs of holding and if ETF or CFD you are buing has much to do with your focus (ex. ETFs do not follow markets exactly, CFDs are a bit expensive to hold overnight). – Tom Jun 20 at 8:14
  • The OP says he doesn't have any debt: "Another option is to pay off all my debt, but I don't have any so that is good". – Lawrence Jun 22 at 15:26
  • Ok, did not noticed, btw stock picking is also statistically wrong idea even most of managed ETFs do not outperform index long term, so individual investor cannot unless trade non-public informations (that would be also illegal?), have a crystal ball or short time fortune. – Tom Jun 23 at 12:17
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If you can afford to buy a house, that would probably be your best bet. Inflation actually helps you because you're paying off the current value of the house with whatever future money is worth.

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If you have the right personality, then buying real estate (your own house and rental property) is a great idea.

There are many not-so-hidden expenses, though.

  1. Property tax.
  2. Insurance.
  3. Normal maintenance and repair of small items.
  4. Normal maintenance and repair of large items (like the roof).
  5. Abnormal repair, like water damage from broken pipe, or psycho tenants.
  6. Long stretches without tenants.
  7. Expensive known government regulations.
  8. Expensive unexpected future government regulations.
  9. Complications to your income taxes.
  10. Civil disturbance which insurance might not cover.
  11. If things get as bad as you fear, you might want to leave the country but no one would buy your property.
  12. Stuff I'm not even thinking of.

Of course, stocks and bonds have their own risks (ones you mentioned, plus others).

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Since you say you will probably emigrate in the future, I would advice you to stay away from anywhere your money gets locked in for any significant duration. Having your money locked in will do nothing but reduce your options. Find ways to invest that don't result in your money being locked in.

Real estate can provide reasonable (but not stellar) returns over a moderate to long term, but it's illiquid, potentially risky, and requires upkeep (which costs money). If you are purchasing to use as a primary residence, will you still want to live in the same house in, say, those 25 years? If the country "doesn't look good" some time down the road, will you be able to sell and recoup the money you put into the house? (Not just the capital cost, but also interest, taxes, maintenance, etc.) I'm not saying don't buy real estate, but I would advice caution, and to not buy it solely as an investment vehicle. If you buy a house and earn a bit of a return on it, that's great; but you should buy a house because you need or want a house, not because it will earn you a return.

With those two out of the way, the big winner for long-term investing is usually stocks. Generally speaking, over reasonably long periods of time, which is to say something like five years or more (this is your investment horizon), it's hard to go wrong with a diversified international portfolio of cheap stock index mutual funds. That's a mouthful, so let's pull it apart.

  • diversified – Don't put all your eggs in one basket. Find a few different options, markets, etc., and spread your money between them. One easy way to do this might be to locate a global market index stock mutual fund, or you can put together a portfolio yourself. Don't go overboard; four or five good choices should be enough to have you well covered.
  • international – There's a reason why your bank is paying 5-8% interest, and it's probably related to inflation (as you say). By investing outside of your own country, you reduce the impact of local investments losing their purchasing power over time compared to those of other countries. As long as you stay in your country, this might even work out in your favor. Broadening your horizons beyond the borders of your own country also reduces risk, since the risk of an economic downturn in one country at any one time is usually higher than the risk of a world-wide simultaneous economic downturn.
  • cheap – Look at that expense ratio. Keep it as low as you possibly can for the type of investment you're making. You can't be sure about future returns, but you can be sure about the cost. For some parts of your portfolio, it may be necessary to pay a bit more to get access to those markets; for example, where I am, mutual funds that invest in Asia or "emerging markets" tend to be a lot more expensive than those investing in the European or North American markets. Having some money in those markets may still be worthwhile, but that's no excuse to not shop around for a good deal for what you're buying. If you can get the same result for a 1% cost instead of a 2.5% cost, you probably should choose the 1% alternative for that market even if you can get access to other markets for, say, 0.2% cost.
  • stock – On the whole, the stock market is more volatile than, for example, the bond market. However, unless you need the money within the next 2-3 years or so, you have a much better chance of making a good return in stocks than in bonds.
  • index – Index investments attempt to simply track an established index as accurately as possible. For example, you could invest in something that tracks the US S&P-500, or the UK FTSE-100, or some other large stock market index. You won't do better than that index by doing so, but you also won't do (significantly) worse than it does. Stock picking is difficult, and it's virtually impossible to keep picking stocks that outperform their relevant index, so you generally have better chances of making a good return by not even trying to play that game.
  • mutual funds – ETFs (exchange-traded funds) can also work. This is just about how you invest the money. Mutual funds have the advantage that their transaction costs tend to be reasonably low, which is an advantage if you are investing a little money at a time. Again, look at the cost; that, and your investment amount, are the only two factors you can be certain about.

You say that you feel it would be "a big gamble for someone with no knowledge in investing", but that's why you should go with index funds; not only do they tend to be cheaper (often considerably so) than actively managed funds, but they also reduce the element of choice to basically "which country's or region's stock market do I want to track?". If you answer that by spreading the money around the world, then even though there will still be years when you get a low or possibly even a negative return, you'd probably have to outright work at it to match the around 0% yearly return you can expect to get from a good bank account on a time frame of more than a few years.

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