Should your stokvel save or invest — and what's the difference?

Stokvels are an important part of the fabric of SA's culture: more than 11-million of us belong to more than 800,000 of these traditional groups. 

According to Tyvision Media — a company that empowers stokvels and burial societies to make informed decisions and reach their financial goals — one of the most common misunderstandings for stokvel members is the difference between saving and investing.

Saving refers to the act of having a particular financial goal, and then putting money aside towards achieving that goal.

For example: stokvel A has 10 members who each contribute R100 monthly. They deposit R1,000 per month in a bank account from January to December with the goal of giving each member R1,200 at the end of the year. 

Investing, on the other hand, refers to the act of committing money to earn a return (profit). Simply put: it's when you “buy” something today that will generate value and be worth more at a later date.

For example: stokvel B invests its money in shares (buys shares) with the hope that the price of these shares will appreciate over a period of time. For instance, if they buy shares at R100 per share in 2024, they hope the share price will increase and they'll be worth R160 each by 2029.

One of the main differences between saving and investing is therefore the initial goal and purpose. The time frame in which the stokvel hopes to achieve this goal — and members will have access to their share of the funds — also comes into play:

• Short-term savings and investments are made to achieve financial goals within a period of 12 months or shorter, and so the money needs to be easily accessible. An example would be stokvel A's plan to collect contributions from its members each month from the start of the year, bank them and distribute the funds at the end of the same year.
• Long-term savings and investments are made to achieve financial goals over a longer period of time, typically a minimum of five years. An example would be stokvel B's plan to invest in shares in 2024, but only sell those shares and so have access to the funds in 2029.

Long-term saving and investing introduces other important considerations for stokvels: 

• Do members of the group want the stokvel to exist beyond themselves? If so, they need to discuss continuity.
• Given the general purpose of growth for stokvels, they ideally need to ensure there are plans in place to enable this, such as having processes that allow younger members to join. Once younger members have joined the group, matters relating to succession and adaptability need to be agreed upon.
• Change is a constant and with the advent of new technologies, the ways to save and invest are continuously changing. For stokvels to survive and grow, it's essential to keep up to date with such changes and understand how technological advancements can benefit the group. 

When deciding whether to save or invest — or do both — stokvels therefore have to discuss and agree on their purpose, goals and the time-frame in which they want to achieve those goals. They also need to fully understand the financial choices they are making and their implications, which is why it's advisable to consult an expert before making any monetary decisions.

Lack of access to financial information and poor administration issues are a challenge for most stokvels. Tyvision Media can assist groups with administration and provide the relevant, credible and reliable information they need to make the best possible decisions to reach their financial goals. 

Do you or your stokvel have financial questions you need answered?

Tyvision Media can help: simply fill in this online questionnaire or submit your questions, along with your contact details, the name of your stokvel and the town in which it's based, via email (admin@tyvisionmedia.co.za), WhatsApp or voice note (081 596 1065/067 742 0534).

This article was sponsored by Tyvision Media.