Investment stacking: ‘It’s never too late to start saving’

For the layman investor who doesn’t know about all the options for portfolio diversification, selecting which investments to choose can be tricky. Upnup’s Justin Asher explains investment stacking and how in today’s unpredictable economic environment, any investor can use it to minimise risk while ensuring returns.

At a time of serious economic uncertainty, it can be all too tempting to take significant financial risks in the quest for high returns. It’s understandable too. Many people have worked hard throughout their schooling career and taken on student loan debt with the promise of a standard of living better than their parents, only to find themselves still living with roommates in their mid-30s.

Is it any surprise then that people get frothy with excitement at the rise of the latest meme stock or that so many were eager to buy into NFTs on the premise that their value would only go up. For anyone who gets their timing right, the explosive profits represent an opportunity to get on the property ladder and maybe get a taste of the lifestyle they were promised from childhood.

But those kinds of high-risk investments can come down just as quickly as they go up. And for anyone who puts all their eggs into those volatile baskets, the consequences of the fall can be devastating.

But avoiding that kind of fallout doesn’t have to be complex. By using well-established methods such as investment stacking, investors can minimise risk while still ensuring returns. It’s an approach which also means that it gives you the best chance of effectively saving for your financial future, no matter how late you start.

Understanding investment stacking 

Investment stacking is, simply put, the practise of starting with lower risk (and lower reward) investments as you build your financial foundation, before moving up to higher risk/higher reward as you get more financially savvy.

Examples of the low-risk investments you might start with include money market accounts, retirement annuities, and index funds. These kinds of investments are far less subject to major fluctuations than shares in an individual company, for example.

Of course, it’s important to note that these investments aren’t immune to risk, merely that the risk is lower. They can still, for example, be impacted by economic fluctuations at national and international levels.

Having built this base, investors can start increasing their risk appetite by building a portfolio of shares in individual companies. While any one stock may go up or down, building a portfolio allows investors to spread their risk, reaping the rewards of stocks that perform well without having to worry too much about the losses accrued from those that don’t.

The same is true for other high-reward investments, such as real estate. Here, investing in real estate investment trusts (REITs) can be safer than buying your own, individual investment property.

Stacking by spending 

But there are other forms that investment stacking can take. At upnup, for instance, we allow people to buy Bitcoin by rounding up the change they get on purchases or adding on a set value to every transaction.

It’s a twist on the “bank your change” offerings that South Africans are used to and means that you’re constantly growing your investments without even thinking about it.  A great feature included in the road map will also allow people to “top up” their investment from their linked bank account at any time.

For people worried about the fluctuations in cryptocurrencies, it’s an approach that offers a lot of benefits. One of the most important being that their investment portfolio is diversified with the addition of cryptocurrency. Another is that amount saved being low enough that there are little concerns/is low risk around fluctuations in the market.

People could, of course, take a similar approach by investing the money from their bank’s “bank your change” facility into things like stocks. That does, however, require an added degree of discipline.

The point is, that you shouldn’t just be looking to stack your investments from a risk perspective but also in the ways you set funds aside into investments.

At the base layer, you have the set monthly investment amounts you make going primarily into low-risk foundation investments such as retirement annuities. The money you don’t really think about, meanwhile, can be funnelled into high-risk/high-reward investments.

Take control of your financial future 

While it’s clear that today’s economic environment makes it tougher for people to achieve the kind of financial security they were promised in childhood, it’s certainly not impossible. By using a sensible approach that balances risk and reward and incorporates investment stacking, people can secure their financial futures.

Critically, technology is making it easier and easier to automate a lot of these processes. Combine the right technologies and products, in other words, and you can practise investment stacking without even thinking about it.

• Justin Asher is the head of strategy and marketing at upnup, a South African fintech platform.

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