How to invest R1000

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Investing is critical to grow and accumulate wealth. Investing your money does not have to be an expensive endeavour. You can start investing your money with little capital (principal amount), even as small as R1000. Here are some tips on how to start investing R1000.

 

1.Tax Free Investing Account

There are different tax free investing accounts, as well as tax free investing products. The advantage of each is that the proceeds of these accounts are exempt from being taxed. Tax free investing accounts /products are good option for people who are new to the market. However, Tax Free Investing Accounts have limitations. The user cannot invest more than R30 000 annually or R2500 monthly, or R500 000 in their life time into the tax free account. Therefore, as your investing portfolio increases you will have branch into new options with other brokers or banks.

2.Take advantage of compound interest

Compound interest is the 8th wonder of the world, and the secret to wealth. Compound interest is the way to put your money to work. Compound interests is when additional interest is added to the initial principal amount. The continuous compounding of your principal amount over long period of time allows you to grow your capital and make money even when you are a sleep.

Let’s look at a few examples:

1. If you invest an initial amount of R1000 at the annual interest rate of 8% over the next 10 years your sum amount after 10 years will be R2158. 92.

2. If you invest an initial amount of R1000, but continue to make annual investments of  R1000 into your account at the annual interest of 8% for the next 10 years your sum amount  will be R17 259.82

3. If you invest an initial amount of R1000, but invest R250 every month in your investment account for the next 10 years at interest rate of 8% for the next 10 years your sum amount will be

 Compound interest can be calculated using following this link http://www.thecalculatorsite.com/finance/calculators/compoundinterestcalculator.php. In these examples we used a modest example of 8% return on investment. There are several investment vehicles that can yield such results and even higher. Investment vehicles such as bonds often pay interest more frequently than annually making the rate of compounding even higher, as well as the potential to get a higher return. Other investment vehicles to consider are mutual funds, efts and stocks.

3. Be patient and don’t chase fast cash

One of the common themes amongst the examples given above is that the investments matured over a period of 10 years. There is no fast lane to financial independence. Too often people chase get rich-quick schemes and end up in financial ruin, because they did not have the patience. If someone offers you high returns over a short period, and it sounds to good to be true it is. If it was that easy everybody would be rich. Rather commit your money to investment  assets with low risk and steady returns.

4.Re- invest frequently

Of the examples given, the best returns were yielded when money was re-invested frequently. “You have to buy stocks like groceries, not like perfume”, speaks truth to investing. Even investing R100 a month will go a long way five, ten years from when you started investing. It is pointless to try to start investing when you need the money the most.

5. Constantly invest in your financial knowledge

It is important to take the time to learn more about the markets. The broader and deeper your understanding is of the financial markets, the better you will be at profiting from the markets.

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