Vintage

Once a week, we post a question on the site that's come from one of our readers.  This week, it's from a young man trying to strike a balance between working and studying:

Question:

Hi Gareth,

So, here is my story:  I finished matric in 2005. I have been working \ learning at my father's business since then.  My father (and his brother) started the business in 2003.  It specializes in the manufacture of road signs.  At the moment we (the company) have a few major contracts with the City of Cape Town.  My father thinks that I should do a course (degree) in business management and when my father and uncle retire then I can take over the business.  I do the design work and the cutting of the vinyl that is to be applied onto the sign face (which, at the moment, is a critical part of the business.)  I also handle all the IT for the company.  That being said, I will not be able to drop work, study 3 years and come back.  I will have to do the course in the evening (probably through Unisa,) and that would mean giving up my free time for the good part of 7 years. My goal - Have a million Rand put aside within 8 years (before I am 30.) 

What I am basically trying to establish is, should try and do a course in business (and give up my free time) or should I carry on as normal and try to do CFD trading (or other) in the time that I have free during the day?  (I could probably arrange to have 2 hours per day to do investing, if I did some work in the evenings.)

What I don't want - I do not want to spend the next 7 years using every evening and weekend to do projects and assignments if it is not going to be very useful to me.

As far as my interests go, I like the running of the business and that, but say for instance this business crashes, I would not like to start another business up from scratch or be employed as a business manager at another company.  I would rather do something like day trading CFDs.

Current Finances:

• Cheque Account - R20 000
• Money Builder (ABSA) - R30 000
• Old Mutual Unit Trust - R15 000
• Allan Gray Equity Fund - R13 000
• Allan Gray Stable Fund - R13 000
• Coronation Capital Plus Fund - R10 000
  

Current expenses:

• I stay at home with my parents
• I do not have a car (as I travel with my father to work and back.)
• I have saved quite a lot of money over the past few years of working and therefore am exploring ways to maximise the interest that I am getting on it.
• Small amount paid as rent per month
• R500 - Investments (Allan Gray Equity Fund)
• R3000 - Saving
  

What do you think?

R

Answer:

Hi R,

First of all, I’m very impressed with the amount of capital that you have saved up. Having only been in the working world for 3 years, most people would dream of having that level of investment and savings built up. I can see that you have a low level of living expenses, which is great, as the easiest way of growing wealth is keeping your day-to-day costs down (I live off about 15-20% of what I make).

I’ll look at three general themes from what you’ve sent me. The first is around what you asked directly – whether to study a 3-year degree or carry on working. Then I’ll look at what options there are for making money (as your primary income source or as a sideline). Then, finally, I’ll touch on my opinions on how to grow what you have saved up already as efficiently as possible.

Okay, so to start with, I believe that everyone should study business to a certain level. Not only does it keep your options open, but it just makes you a more aware and productive member of society. Having said that though, not everyone needs to do a full-on business degree to be effective. You said in your email that you wouldn’t necessarily want to start a business from scratch – this tells me that the entrepreneurial streak in you is not as strong as the investor one. And that’s fine. My opinion is, if you feel that way, I wouldn’t recommend doing a university degree in business. While these degrees are fantastic, they cover all areas of business, and are aimed at those who want to start their own businesses or move into senior/executive positions in others. I would look at doing a business management course through a college (like Boston or Damelin or Intec, etc.). There are plenty of them to choose from, and they would cover the basic of business reasonably well, at least well enough for your purposes. The real benefit comes in that they are much shorter and more flexible than ones from a university (you’re looking at 6 months to a year, with more flexibility on terms of assignments, dates, exams, etc.) Doing one of these would allow you to continue to work with your dad, but also increase your business knowledge, without stealing too much free time.

Then, for making money, I would suggest you stay on at the family business (I do have a couple of things I would say about the business too, though, but that’s for a different time). Your income source there would be pretty stable for now, which you could use to put into other investments. On the side, I would then look at some trading opportunities. I mentioned equity and perhaps future trading as ones to look at before getting into CFDs. There are plenty of books and courses on these areas (in particular, free ones presented by the major banks). I would take in as much as you can from these courses, and then get into some trading. Just remember to start small, be patient, have a defined plan and trading goal, and to not get greedy. Alternatively, you could even get the bug for starting your own business after doing a course in business management, you never know!

For growing your current capital stash, there are a couple of things I would suggest as well. Firstly, move some of your cash out of your current account – it’s earning you zip being in there. Even if you put it In a basic savings account, it would earn you more than you’re getting at the moment. Then, I can see that you have 5 different investments at the moment. That’s great that you have it split across different investments – diversification is always a good move. What you want with investments is to have them staggered – some with lower, stable return; some with medium returns; and some with the chance of higher returns. The younger you are, the more you should have in slightly higher risk investments (like equity) – your chances of making a bigger return are better. Yes, the chances of losing some money are higher, but as you are young, you have more time to make it back. Then, as you get closer to retirement, you should have more of your money in more secure investments (like bonds or cash equivalents). From what I can see in your case, I would say you have slightly more low-risk investments than you should (everything other that the AG Equity fund is lower-risk). If you want to take a more low-risk approach, this is fine, but realise that you are sacrificing the chances of accelerated returns. Consider moving some of it into a more equity-based investment vehicle. Completely aside from corporate investments, you could look at alternative investments like lending to small business start-ups. These are more risky, but you can get a good return if you pick a trustworthy business/entrepreneur. I do this, and get 20% a year on most of them (but maybe wait until you have a better feel for business)...

Gareth