When it Comes to Investing, Debit Orders are Your Friend

“The beauty of debit orders is that they make investing a habit, not an afterthought.” (Warren Buffett)

We’re all human – which often means being emotional and not consistently disciplined. Debit orders remove the emotion from investing and encourage responsible behaviour. With debit orders in place, you don’t have to choose between contributing towards your retirement or upgrading your Apple watch to include additional features you’re likely not to use.

Once you’ve consulted with us and we’ve agreed to the amounts, you should set up debit orders for various investments, including an RA, an emergency fund, and the much-needed annual holiday fund.

Little and often

Investing the same amount every month helps you stay on track and not be influenced by market cycles. We all know it’s a bad idea to try to time the market. Automating your investing via debit orders minimises the risk of losing capital if the market falls shortly after investing a lumpsum amount.

Setting up debit orders for your investments is not just a smart move, it’s also highly convenient. Once you’ve locked in the debit order, the process operates automatically. This convenience allows you to focus on other aspects of your life, knowing that your investments are being taken care of.

Rand-cost averaging

A further advantage of regular contributions towards your investments is rand-cost averaging. This concept means that when you use debit orders, you buy more units (of shares or unit trusts) when prices are low and fewer when prices are high. When you invest in well-selected investments, they will grow in the long term, so you benefit from a reduced average cost per unit. In simple terms, it’s like buying more when prices are low and less when prices are high – which should lead to better long-term returns.

And then there’s the magic of compound interest

The underlying principle of compound interest is that you earn interest on an ever-increasing amount of capital, as opposed to only earning on the original capital amount. This amounts to growth on growth for Titanic profits. Over the years, modest contributions to well-chosen equity funds can snowball into impressive sums, giving you a reason to be optimistic about your financial future. Little wonder Albert Einstein called compound interest “the eighth wonder of the world.”

Inflation is the real deal

According to Stats SA, the average inflation rate in 2024 was 4.4%, down from 6.0% in 2023. But it certainly doesn’t feel that way when you shop for food and other household essentials. Medical and education inflation rates are also higher than general inflation.

Inflation erodes the purchasing power of your money over time, so it’s important to ensure that your investments keep up with or exceed the inflation rate. This is why it’s so important you participate in your annual review every year so we can adjust your debit orders to keep up with inflation. Auto-escalations are not a substitute for a financial review, as your investment goals may change.

Let’s sum it up

Now that we’ve looked at how debit orders create savings discipline and leverage the benefits of both rand-cost averaging and compound interest, you should have a much higher opinion of these oft-criticised banking instruments.

If you haven’t already done so, please come in for a chat about using debit orders to secure your financial future.

Jason Yutar: +27 83 415 9603 or
Zaheera Mohammed: +27 82 775 1898

Disclaimer: The information provided herein should not be used or relied on as professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact us for specific and detailed advice.

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