Great TFSA Race Investor Profile – Wonder Nxumalo
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The Great TFSA Race is steaming ahead! We’re profiling one of the entrants every week, culminating in an announcement of the winners who will each get R5 000 to add to their savings. Find out more and enter here.
This week’s Great FTSA Race contender is MSc student Wonder Nxumalo.
Having developed a keen interest in investing at an early age, the 25-year-old chemistry student has decided not to put off investing until he starts working. Rather, he dedicates a portion of his stipend to a tax-free investment account. His aim is to make sure he is financially secure as early as possible.
Wonder attributes his extensive knowledge on the subject of investing to his thirst for knowledge and insights gained from reading financial publications.
He will be using his TFSA as vehicle for long-term capital growth and to make sure his daughter can get a better education than he was able to receive.
“I need constant capital growth and while this is often hindered by the fluctuating net asset value, it is sort of hedged by regular distributions and regular monthly deposits.”
Wonder’s TFSA portfolio boasts a range of ETF products including the db X-tracker MSCI World Index ETF (which invests in the major global stock markets); the Mapps Protect ETF (a conservative fund that invests in equities, bonds and cash); Satrix Fini (invests in financial counters) and Stanlib Top 40 (invests in the 40 biggest companies on the JSE).
He has chosen ETFs not only for their liquidity but also for the prospect of receiving regular distributions from some of the investments. Some ETFs distribute dividend payments to investors while others automatically reinvest them on the investor’s behalf.
Savetaxfree sat him down for a few questions about his strategy.
Tell us a bit about yourself and what has shaped your views on money and saving?
I am still a student, completing my Masters in chemistry through a bursary from the National Metrology Institute of South Africa.
When it comes to money and saving, I do think everybody should be investing for future needs anyway as you may need the money on rainy days. I also want to be able to give my daughter a better education than the one I received.
How actively involved are you with your investments? Would you describe yourself as a more active or passive investor?
I broke my portfolio into a number of segments. My TFSA is with EasyEquities and is more passive because the ETF’s investments are pre-determined, all I have to do on my side is fundamental analysis in order to make a decision on which ETFs to buy.
What is your investment strategy and why do you feel it is the right one to help you meet your objectives?
I want consistency from my ETF investments. I will often do fundamental analysis of the fund and its underlying holdings to get an idea of how it has performed in the past. I know that past performance does not guarantee future performance, but it still gives you an idea of how consistently it has performed.
You’re saving for financial security and yet you’ve chosen to invest in ETFs, which some would regard as quite risky, what is the rationale behind this?
I think ETFs are not as risky as people think they are. They’re not as risky as direct stocks because they invest in a pool of different stocks. Because of that, the diversification helps in that if one share is not performing, you have others to balance things out. The fact that they are very liquid also makes them easier to sell when I need to, whereas my unit trust investment can take up to two weeks to sell sometimes. I also get further diversification because I invest in a few ETFs, so if one underperforms, others might balance it out.
You also mentioned that you’re looking at an investment horizon of 10 years or more, yet you chose ETFs for their liquidity. Don’t you feel the easy access may prevent you from reaching your horizon? How will you resist temptation to cash in?
Just before I started I asked myself whether I wanted to trade or invest and the answer was that I wanted to invest, and build wealth over the long-term. This is why I decided to invest 30% of my income in ETFs as opposed to a trading account which involves more frequent buying and selling.
What would you say has been your biggest financial challenge so far?
The challenge so far is resisting the temptation to sell my cash-generating assets. Sometimes you find that you’re short of money to meet other commitments and the temptation to sell becomes really compelling.
You stated in your entry form that you’re not yet able to meet the annual R30 000 limit, you say you’re working on it. What changes or lifestyle adjustments do you think you will need to make in order to achieve this?
With my stipend, there aren’t any financial adjustments I can make at the moment as it’s just too little, so I can’t change anything about that yet. However, with the CFD [Contracts for Difference] trading account I recently opened, I hope to be able to meet this, but that all depends on whether I make a profit from it or not.
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