CAIRO: The idea of saving money often brings to mind the image of an overflowing piggy bank or stacks of bills hidden under the mattress. Fortunately, today's options for individuals looking to store some cash away over the long term are plentiful, not to mention much more secure than that old piggy bank. Saving for retirement, education and marriage involves more than squirreling away extra income in a savings account. While this type of savings is important, to make the most of one's money, it is necessary to invest a good proportion of it in savings investment plans that will accrue interest over time. According to Omar Fahmy, asset management specialist at Prime Securities, individual investors have a lot more options than they realize. "Extra income can be invested in stocks, mutual funds, treasury bills, or bonds, depending on the amount of risk you want to take. Other options include futures, foreign exchange, commodities and real estate funds, though these are less common in Egypt, he said. Investment-savvy savers normally choose a combination of investments to create a diversified portfolio. For those looking to gain higher returns, the stock market is the only game in town. For others, the growing retail banking sector is providing more stable savings options. Banks like HSBC have created retirement, marriage and education savings plans to help customers prepare for these events financially. Plans typically require monthly payments over a minimum period of 10 years, and often include life insurance for the policyholder as part of the package. Client contributions to marriage and education funds are invested in fixed-income assets like treasury bills and bonds. These investments provide the policyholder with a relatively stable rate of return over the period of investment. Retirement savings plans usually involve more risk and higher returns, with customer payments invested in stocks and mutual funds as well as in bonds and treasury bills. "Retirement savers need to accumulate a very large amount of money, often over a period of only 20 years or so, so they typically need to take a little more risk than marriage or education savers, said Fahmy. Marriage and education savings plans normally require a monthly payment of about LE 300, depending on the bank, while a retirement savings plan would involve a LE 700 monthly payment. Clients can pay as much as they want into the accounts as long as they meet the minimum. "Different banks have different minimums, but at the end of the day, you get what you put into the account; the more you pay, the more you will get back later, so the plan you choose will depend on your income level and how much you can spare each month, explained Karim Soliman, a wealth management specialist at a major Cairo bank. But how well do these plans actually work? "Between 2004-2008, the average annual rate of return for these investments was between 40-50 percent, so these plans are quite effective when held over a long period, said Soliman. Culturally, the idea of long-term savings is just taking off. According to Soliman, many clients want to see an instantaneous return on their investment and often opt to pull out of savings plans before the 10-year minimum period. "A lot of people want quick results, which explains the obsession with real estate investment. Unfortunately, a lot of people don't follow through on long-term savings and even pay a fee to cash in their policies early. This can put people in a bad situation later on, he explained. Some young investors, however, have begun to understand the importance of saving from an early age. Omar Fahmy of Prime Securities sees a lot of clients in their late 20s and early 30s wanting to explore retirement savings options. "It's a good sign when young people are taking their financial future seriously; it shows that the younger generations know more about the importance of savings, and won't make the mistake of starting retirement savings at age 40 or 50, he said. Of course, most people who can afford to save are financially secure to begin with. The vast majority of Egyptians spend all of their income on basic consumption. The upper classes can typically afford to finance major expenses without creating savings plans, so many of these new retail banking instruments are meant to appeal to Egypt's small middle class. "I live very comfortably, but if I want to send my kids to the best universities I will need to plan ahead and save to pay the tuition, said Maha El-Sheshtawy, a 33-year-old mother of two. "Things are too expensive to just take out of our monthly income. For middle class professionals like El-Sheshtawy, an education or marriage plan would be helpful, and a retirement plan is essential for the future, according to Soliman. "The middle class can clearly benefit from these plans - putting aside LE 700 per month is very doable and will bring them a lot of security later in life when they face big expenses, he said. Hopefully, with the help of the growing retail banking sector, those who can afford to do so will begin to make long-term savings a financial priority, and move their investments out from under the mattress. To read the other stories in our bi-monthly special focus on Egypt s banking sector, click here:http://thedailynewsegypt.com/article.aspx?ArticleID=18082http://thedailynewsegypt.com/article.aspx?ArticleID=18080http://thedailynewsegypt.com/article.aspx?ArticleID=18079
