Stokvel concepts with appropriate investment models may hold the key to alleviating poverty and extending equal access to economic ownership and capital accumulation in South Africa.
Most people have been using stokvels for informal savings over the years, frequently depleting their savings around the December holidays, before going on spending binges during the festive season and starting over the following year.
Instead of withdrawing all funds for short-term goals, FNB experts believe that stokvels should consider diversifying their portfolios using a wide variety of investment vehicles that can yield returns that surpass inflation. The annual inflation rate in South Africa was 7.2% in December 2022, down from 7.4% in November, but still above the upper limit of the South African Reserve Bank’s 3%-6% target range. Sifiso Nkosi, Head of Stokvels and Group Savings at FNB, says “aside from a standard savings account, there is a lack of stokvel investment vehicles in which members’ savings can be invested for the long term. This is a missed opportunity for the stokvels, as their savings could potentially yield a higher rate of return from other long-term investment solutions. For Stokvels that hold their savings with FNB, this gap could be closed by selecting longer-term investment vehicles, which include Unit Trusts (Horizon Series; Shares (Share Zero) and the full product continuum available to individual customers.”
Stokvel members can improve their individual savings and investing plans by diversifying the stokvel payouts and using the principles of collective saving (discipline, accountability, and belonging to a community of like-minded people). The advantage is that stokvel members have an all-encompassing investing strategy that meets their demands in the short and long term rather than being overly involved in the short-term investments.
“The risk of being unduly focused on one asset class is decreased by diversifying the underlying investment in a stokvel. As a result, when one asset class underperforms, which is frequently the case, another asset class may outperform, which lessens the impact of the underperformance of one asset class. Our desire to increase the underlying investment in stokvel solutions stems from the fact that diversification is at the heart of the investing concepts we promote to our clients. In the future, we see our clients investing in cash, unit trusts, direct shares, and exchange-traded funds,” says Samukelo Zwane, Product Head for FNB Wealth and Investment Solutions.
How stokvels can re-invest earnings into other long-term vehicles
Stokvel members can utilise their dividends to fund their tax-free savings accounts as part of long-term retirement planning.
“Members who reinvest the earnings from their stokvel increase the compounding power of returns. If you invest in cash items, the proceeds could be interest; if you invest in shares or unit trusts, they could be dividends. Members that invest grow their overall investment pot, allowing the investor to earn returns on a greater capital basis from which they can earn larger returns on their investment. Since compound returns have a greater impact on long-term investments made by clients, the FNB encourages reinvestment for these clients,” says Zwane.
It’s critical for financial institutions to offer long-term investment options for stokvels to allow groups that same investment continuum available to individuals or businesses. This will ensure that stokvels can hold a variety of investment products, ranging from demand (short-term) to more longer-term investment solutions such as bonds, unit trusts and shares.