The Little Debit Order That Could

People are constantly told that they should save, even if they start small, with as little as R100.

But where should they put their money? Unless they are the president of South Africa, sticking their cash into their couch is a bad idea. There are, however, a number of options for people who want to start saving, even if it’s a small amount.

Should you go for a money market account or an index tracker?

The Common Sense looked at the return for a saver who started putting R100 a month into a money market account January 2020, and then did the same calculation if the saver had put it into an S&P 500 tracker fund.

Over 71 months the saver’s contribution comes to R7 100, yet the final balances tell a bigger story about risk and reward.

Rough calculations by The Common Sense suggest that a steady drip into a typical South African money market fund, compounding at recent average rates, would now be worth in the region of R8 500 to R9 000. The capital is largely preserved, the ride is smooth, and the growth only just keeps ahead of inflation once tax and fees are considered.

The same R100 a month into an S&P 500 tracker delivers a far punchier outcome. Thanks to the post-Covid rally in United States equities and the strong rebound after the 2022 slump, those same contributions could today be worth roughly R13 000 to R15 000, equivalent to roughly 160% of the money market result over the same period.

The gap explains why long-term investors are repeatedly told to own shares. Equity markets are volatile and there is no guarantee that the next five years will repeat the last. The path between 2020 and 2025 included a crash, a boom, and periods of anxiety that many savers would have found hard to stomach.

For short-term savings and emergency buffers, a boring money market account still makes sense. For long-term goals such as retirement, education, or building family wealth, this period has again shown that accepting calculated risk in global shares has the potential to pay off far better than leaving everything in cash.

But do your own research and don’t rush put all your money into an index tracker. It is always a good idea to talk to someone you trust and approach a financial professional for advice.

*All calculations done by The Common Sense. This is not intended as financial advice.