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Unlocking the potential of stockvels as a path to build generational wealth

Stokvels must take a few planned steps in making any simple or complex financial decisions.

Stokvels are a way of life for many South Africans and an integral part of the country’s economic landscape. These collective schemes are a phenomenon with an immense potential yet to be fully unlocked.

“With millions of participating members and contribution and saving pools amounting to billions of rands, stokvels can transform the financial well-being of countless individuals and communities. To do that, you need a mindset shift.

Himal Parbhoo, CEO of Retail Cash Investments, says, “Stokvels have always been seen as mainly a collective savings vehicle.

“They are groups where ordinary people pool their money and store it for when they need it one day.

“We believe that stokvels can, and should, be much more than just money storage schemes; they need to evolve into powerful platforms for wealth creation,” he said.

The unique structure of stokvels with multiple members who trust each other to pool their resources, to meet shared financial goals, creates an environment highly conducive to long-term, substantial capital accumulation.

“Recognising this inherent potential, we are working with these groups to harness this benefit of all stokvel members.

“Just like financial advisers assist individual investors, we are setting up partnerships with stokvel groups to help them construct investment strategies that align with their members’ short, medium, and long-term needs,” adds Parbhoo.

Through comprehensive financial analysis and tailored portfolio advice, each stokvel can explore investment options that extend beyond the typical low-interest savings accounts to include longer-term savings plans, unit trusts, and even property and business ownership and direct share investments.

“As stokvels become more sophisticated, and gradually shift from being basic savings vehicles to bona fide investment platforms, they will become much more complex, and this raises the need for better structuring and governance, as well financial and estate planning, all to achieve meaningful wealth creation that transcends generations.

“Stokvels must take a few planned steps in simple or complex financial decisions. Making smart financial moves will benefit the group significantly as they navigate financial freedom and wealth creation,” says Ester Ochse, Product Head, FNB Integrated Advice.

Parbhoo says, “One challenge to the achievement of a stokvel’s wealth creation potential is the fact that many of these schemes still hold the assets they invested in their personal capacity.

“This means, on the death of a member, their stokvel savings become part of their deceased estate. Apart from the long lead times required to tie up the estate, the situation often arises where these stokvel assets are liquidated to settle other financial obligations.”

One of the key requirements for successfully transforming stokvels into wealth-creation entities is effective fee management.

As any investor will attest, minimising fees is critical to maximising the growth of any investment. This is especially true for stokvels, given they typically involve numerous transactions each year.

Fees levied on each transaction can quickly eat away at the money invested, diminishing the growth potential.

Stokvels have come a long way, but their journey toward realising their full and immense potential for wealth creation has just begun.

Partnerships with financial institutions that understand this potential, and are committed to unlocking it, can catalyse this transformation, helping stokvels evolve from traditional savings pools into diversified investment portfolios that empower members, enrich communities and create wealth for generations to come

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