Where to invest your money in 2023? 

Investing in your financial future is absolutely essential. Which raises the question; - Where to invest your money in 2023?

Unfortunately, if you simply Google the matter you will find innumerable articles advising you to invest in the particular product that somebody has to offer. The insurance companies have the most money and throw the most money at marketing, so you will encounter much of their literature. The result is that and you are blinded to the other options out there.

In Robert Kiyosaki’s famous Rich Dad Poor Dad book, he identified 3 wealth classes based on their spending habits, not their bankable cash

• The poor – they only have expenses ( transport/rent etc)
• The Middle class – they buy liabilities and call them assets (car payments/house payments)
• The Wealthy – They are always investing in assets that provide a good ROI

He goes on to clarify that a liability as anything which eats you if you lose your job, and an asset is anything that feeds you when you lose your job.

So, what is the key to acquiring great wealth? Simple, learn from Robert Kiyosaki and Always Be Investing. (ABI)

“Where can I invest to get the best bang for my hard earned buck?”

 “Bang for your buck” is measured by maximizing your Return on Investment (ROI).

 Simply put, when you invest, the money you earn off the investment in one year divided by the amount you invested, gives you a percentage ROI.

So for example if you place R100 in a savings account for 1 year at 5% interest per annum, you will have R105 at the end of the first year. Your ROI would be R5 (return) divided by R100 (your investment) = 5%.

So when a bank offers you an interest rate of 5% they are saying, “if you invest with us, we will give you a ROI of 5%.”

So what are the investment options available? 

Money in the Bank 

Are banks the best place to invest your money and what are the options? You can save money in various savings accounts, call accounts, market linked accounts etc that the banks offer. Shop around and don’t expect your current bank to offer the best deal. The banks make it very easy to open a savings account, and you should have no trouble finding the best interest rates available out there, opening an account, and placing your money in savings.

Generally you can expect banks to offer an ROI equal to the inflation rate in your country. So in effect your money is not growing in a savings account, it is merely being stored and retaining its buying power if the ROI is equal to the inflation rate.

Where to invest your money? I personally think of bank savings accounts as a place to stockpile cash until you have enough to invest in something that provides a better return on your investment..

Invest in the Stock market

The easiest way to Invest in the stock market is through a broker or financial advisor who buy individual shares, Bonds, Share portfolios, Unit trusts, Balanced portfolios, Retirement annuities (RA), living annuities, preservation funds on your behalf.

Whether the financial advisor is offering you a monthly unit trust savings plan, or a share portfolio comprising of a basket of shares, or a retirement annuity, these are all based on the stock market - These include local or international stock markets.

The financial services brokerage decide where to invest your money and will then buy your shares for you, and charge you a fee to buy and to manage your portfolio of shares.

Typically they offer portfolios with differing risk profiles and correspondingly different projected return on investment. The idea is that so called blue chip investments like government bonds will give a lower but more consistent returns, and venture capital or emerging industries will potentially give a higher return, with correspondingly higher risk of that return not materializing.

If all is good, as it rarely is, their returns will be as predicted and generally you can expect them to beat inflation, but not by much.

For example the Allan Grey Balanced Fund (unit trust) has historically returned an average of 9.6% for the last 10 years (see image from their website below) in an environment where the South African Inflation rate over the same period has averaged around 6%.

*Image courtesy of Alan Grey

My further concern with investing is shares, is that you are essentially investing in paper, and you are relying in complete strangers (with different motivations and financial incentives to you) to make decisions as to what shares to buy.

Bitcoin and other Crypto currencies

Investment is Crypto currencies has given some people absolutely incredible returns over the last ten years, and at the same time lost a lot of people a lot of money.

In the spirit of crypto currency usage, crypto has evolved independently of governments and the financial services industry with all its checks and balances. The average “man or woman in the street” can watch a few Youtube videos and start trading crypto currencies believing that they are going to beat the odds and make millions.

Unfortunately they are doomed to follow the emotional roller coaster ride of the volatile crypto currency markets, buying at the wrong time and then selling at the wrong time.

When the media is all hyped up with excitement and the public think that the prices are going to continue rising to infinity, only to realise that the prices come down even quicker that they went up. It’s a hairy ride down into the bear market as they hang on to their Bitcoin for dear life and just at the point when they think all hope is lost, they sell at the bottom of the market. When the prices pick up again, they are hesitant to re-invest and finally when they are confident that all is good and the market is going upwards to infinity and beyond, they jump back into the market, only to repeat the cycle.

Charlie Bilello complied this chart in March 2021 showing that Bitcoin grew at an average of 230% annually for the previous 10 years, and compared it to various share and currencies performance over the same period.

Clearly Bitcoin beat the best in the market 10 times over but only the informed investor who knows how to buy and hold their crypto will have succeeded. Study the chart and imagine the losses incurred if you bought Bitcoin at the end of 2017 bull run and then sold it all in a panic at the end of 2018! 

Property Investment 

Property by its very nature is a long term safe investment and therefore an ideal investment class to consider to invest and grow your wealth.

It is also the only asset class that allows you to invest with other people’s money (ie the bank’s money), not your own.

A simple property risk assessment can be done by considering banks. Everybody knows that banks understand risk and lend money freely for property investment.

Try borrowing money from a bank to invest in blue chip shares, or low risk share portfolio or even Bitcoin. You will be met with bank incredulous stares from the bank.

But if you have been working for at least three months, you can walk into a bank and find the home loans counter dedicated to lending you money for property investment. They will not only lend you money, they will incentivise you to borrow from them and will lend a first time home owner more than the purchase price! Banks obviously know something – why else will they lend a 23 year old first time home owner more than 100% of the cost of a house.

Obviously the saying “safe as houses” has merit!

Now, if the banks believe that investment in property is the lowest risk (ie safest) investment: surely using the logic  that  “the lower the risk the lower the return”, we can expect extremely low returns on property investment? …..  NOT SO!!!

Buy to let property investment done properly can offer fantastic returns upwards of 100% if you apply the essential rules of property Investment. Namely, you need to buy the correct type of property, in the correct location, at the right price while you apply the most important rule – ALWAYS BE INVESTING  

Tax benefits of owning investment property 

Robert Kiyosaki, love him or hate him, he KNOWS MONEY!

 I have often heard him say in interviews that “debt is money”. At this point the interviewer gives a knowing nod in an effort to hide their befuddlement.

What the Kiyosakis’ of this world do is, instead of drawing massive salaries from their investment companies, they borrow money from their property portfolios to live from.

This “debt is money” approach  provides 2 immediate benefits.

Firstly they are living off borrowed money so they don’t pay income tax on their “income”

Secondly , borrowing against their assets  increases the interest on their property loans, giving them yet another tax deductible expense to reduce the tax that they pay on rental income.

In case you didn’t get that… When Mr Kiyosaki or Mr Trump borrow money out of their property investments, they don’t pay personal income tax, and while they are not paying personal tax, their property investment pays less tax due to the increased interest payable due to the loans they took out.  

I personally experienced this for the first time when I took out a second bond on a townhouse to pay for my child’s education (click here for the full story).

 I borrowed R300 000 tax free out of my property to pay for a university degree.

The ABI Strategy – (Always be investing)

With an ABI hat on, one should decide how much you have available to invest every month, and set that amount aside for investment in something that is both as secure a possible and offers maximum Return on Investment (ROI).

Take it one step further and write the amount down, and escalate it every year by the inflation index, (or more) depending on your salary increases and change of circumstances. But whatever you do, Always Be Investing. 

The insurance companies do one thing right and that is to instill in you the need to always be investing in their product. Normally a broker who sells you a retirement annuity (RA) will sell you a product that requires a monthly investment increasing by the inflation index every year. The investment methodology is correct, but their products normally only offer dismal annual ROI  as discussed above.

On the other  hand, property investment, where you can really leverage your investment by using other people’s money (OPM), can earn massive return on investment.

Property would be the obvious place the smart money would want to invest, regardless of how the financial services sponsored media speak gloom and doom over the property market.

How do you work out the Real Return on Investment for property?

Residential buy to let property earns massive ROI due primarily to these factors which need to be considered.

• OPM – You pay for the property with a bank loan – Using other people money
• OPM - The tenants pay off your property loan – Using other people pay off your debt
• Capital Growth of your property.
• Tax benefits and tax free income all along the way 
• Rental Growth

OPM – You pay for the property with a bank loan 

A major factor influencing your return on investment on a buy to let property, is that you don’t pay for it yourself. The opiate of the property investor is called OPM [Other People’s Money] – in this case when you borrow money from the bank to buy the property, you are not investing your own money.

To calculate Return on Investment, you divide the total income (Return) by the money you invested (Investment), so it stands to reason that the less of your own money you invest, the greater your return will be.

Generally the total that you invest will be the property transfer costs [about R45000 on a R700000 townhouse), plus any cash injections necessary to meet the monthly holding costs for the first few years. 

OPM - The tenants pay off your property loan

Think of it this way, if you buy a townhouse for R 700 000 and your tenants pay it off for you over a period of 30 years, they are actually providing you with a return on investment of approximately R700 000 over 360 months. Somebody else (your tenant) is therefore investing an average of about R2000  per month into your asset for 30 years!

Banks don’t see it like this of course, as they load your bank loan up with interest in the early years so that they get their share first.

The tax benefit for the investor of course, is that the interest payable on your bond comes directly off your taxable income. With approximately 95% of your initial bond repayments considered by the taxman as tax-deductable. In effect you get a tax benefit on most of your bond repayment in addition to the R 2000 per month that your tenant is paying for you.

Capital Growth

Capital Growth is the term used to measure how your property grows in Rand value over the years. A capital growth of 8% per annum would mean that you are expecting an average annual increase of the rand value of your property of 8% per year over the 30 year term.

The annual growth is effected by many different economic and political factors, so one needs use an average growth rate to make any sense of capital growth over time.

Capital Growth is the power of property investment, and is the factor that you need to be very careful to maximise. You cannot do anything about the average annual growth rate of property in South Africa, but you can make sure your property is well located in growth zones so that you BEAT the averages!

Tax benefits

Traditionally we don’t apply tax deductions to Return on Investment calculations, mainly because everybody pays tax at a different rate, depending on your income bracket.

It is good to know where to can expect to pay tax, and where you can expect to earn tax deductions so that you can maximise your overall return on your property investments.

Essentially every Rand you invoice your tenant in rental and utilities, is considered income and will be added to your personal taxable income.

In the same way every expense you have on the property, such as agents fees, repairs, rates and taxes, bond interest etc. is subtracted from your taxable income.

Since most buy to let properties require cash investment for a few years, the taxman considers most of this investment to be a tax deductible expense. Imagine, you even get tax breaks on the money you invest!

But that’s not all, what investors like Robert Kiyosaki have learned is that in the future when they want some cash to live on, they simply borrow money from one of their property loans. This results in reducing the tax payable on their property investments while giving them tax free income.

You gotta love property Investment!

Rental Growth

In addition to carefully locating your property investment in high growth areas, Inflation also works for you in that rentals inevitably increase. (In my personal property experience of the last 30 years in South Africa, I have only ever seen residential rentals reduce once, and that took a worldwide pandemic)

Increasing rentals then provides surplus cash which you can add to your personal monthly investment commitment. Unfortunately, the taxman sees this surplus cash as taxable income.

That leaves you with a choice, start paying tax on your surplus cash, or use that cash to invest in new properties. If you do this, instead of paying tax on extra income, use that to subsidise investment in new properties. Again the taxman is helping you to invest and grow your property portfolio

So how can you do this yourself? 

If property investment was really that simple to do, everyone would be doing it. Although the concept itself is relatively easy to grasp, there are many pitfalls along the way waiting to trip up any newbie investors.

Organic Growth offers buy to let training (free and paid courses), plus tons of link free training material on our website.

Many people have a go at property and fail, but with some property coaching and training, buy to let property investing is actually very accessible to the normal salary earning person.

We offer property investment coaching to really ramp up the returns, and make sure you

• Buy the right type of property,
• Buy in the right location,
• Buy at the right price

In the video above I describe how we secure great deals at incredible prices for our  Investment Club members. On these kinds of deals that we source for our  investment club members we normally achieve purchase discounts of up to 74% and these properties are achieving ROI’s close to 100% per year.

ABI onwards and upwards - Where to  invest?

The sky is the limit if you apply the ABI strategy to property investment and allocate a fixed amount to property investment every year (With huge returns like this, why wouldn’t you?), and continually add buy to let properties to your portfolio. 

So what are you waiting for?

Decide today to be wealthy and become an ABI property investor -    Click the button below to view our property coaching options.

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