Personal investing

Savings clubs: A tool to build wealth

Each year, over 11 million South Africans use savings clubs and stokvels to save more than R50 billion. The tried-and-tested benefits of saving as part of a group can be used to build long-term wealth. Tinashe Kunaka shares the advantages of joining a savings club to achieve your goals and some ideas to increase the likelihood of your success.

For over a century, savings clubs and stokvels have helped generations of South Africans save money. Some savings clubs have focused on helping members save towards various things, including building a safety net to assist during funerals – in the form of burial societies – or saving for their children’s education.

Mizi Mtshali, CEO of the National Stokvel Association of South Africa, says that many savings clubs are becoming multi-purpose groups by working towards a primary goal and investing any excess savings for long-term growth. Some savings clubs are solely focused on investing in property, financial markets and businesses on behalf of their members.

Savings clubs make use of personal networks to bring like-minded individuals with shared financial goals together. Members commit to contributing money on a regular basis and hold each other accountable along the way, increasing the odds of success.

What we have observed from stokvels is that shared accountability can be incredibly useful to help investors stay the course and realise their goals. In addition, by pooling their skills and resources, savings club members are able to make large investments that may otherwise be unattainable and share the risk that comes with any investment.

Investing in unit trusts

Many savings clubs invest in unit trusts to grow their wealth. Unit trusts offer investors easy, affordable access to financial markets. There are different unit trusts available that are suitable for different needs, objectives and timeframes.

When a savings club invests in a unit trust, the money is pooled with that of other investors. This money is then used by an investment manager to buy shares, property, bonds, cash or a combination of these assets, in local or foreign markets, on behalf of investors.

Setting up your savings club for investment success

Savings clubs rely on a high degree of trust, dedication and transparency. Investing is a long-term journey. Therefore, it is important that members share the same vision and level of commitment. There are a few things you can do, if you are not doing them already, to lay the foundation for successful outcomes.

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