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Your goal should be to save at least 10% of your pre-tax earnings, says Old Mutual. In a country known for its poor savings culture, this is easier said than done.
While your finances are affected by many things
like the economy, interest rates, an annual increase in your salary (or lack
thereof) or unforeseen circumstances, the sooner you begin to save, the better
your financial situation will be.
Says Standard Bank: “For the man in the street, or the seasoned investor, unit trusts offer a simple and effective way of saving money – they are also the perfect way to build a balanced and diversified investment portfolio.”
Phillip Kassel, executive financial adviser at Liberty, agrees, saying that investing in unit trusts is an exceptionally good idea, particularly if your time horizon is fairly short and if you do not have a substantial amount to invest.
“It affords you the opportunity of investing in a number of top market-capitalised publicly listed companies on the local stock exchange, all for the minimum buy-in of R50 a month – some unit trusts have a higher minimum buy-in.
This allows the investor a chance to invest in a diverse range of large companies which, as an individual investor, they might not have been able to afford,” he explains.
One of the great things about unit trusts is the diversity of investment choice. According to PSG, as of March 2015, there were more than 1 200 local unit trust funds available to invest in, and more than 700 foreign unit trust funds. This means you’ll undoubtedly find something to suit your unique investment profile.
Anet Ahern, CEO of PSG Asset Management, says: “Unit trusts can be beneficial for both retirement and discretionary savings [or shorter-term savings you can access before retirement] as they are a convenient way to invest and grow your savings.”
When asked what the best unit trusts are to invest in and which to avoid, Allan Gray’s head of strategic markets, Thandi Ngwane, says that selecting a unit trust can be every bit as daunting as choosing between the companies listed on the JSE.
“You need to take great care that the profile of the unit trust you select meets your specific needs. If you don’t have the time, expertise or confidence to do this, you may be better off seeking independent financial advice,” she says.
“A point of departure when choosing a fund is broadly to divide the universe of local unit trusts into ‘solution funds’ and ‘building blocks’.”
She says solution funds offer investors exposure to a variety of assets normally including equities, bonds, cash and property – since you invest in a single fund, you don’t have to worry about how to divide your exposure to different asset classes - the fund manager does it for you.
“It’s well known that intelligent diversification between different asset classes can have a significant impact on an investor’s risk/return outcome. But getting the balance right on an ongoing basis is extremely difficult. Cash may be king today, but equities or bonds could be far better investments tomorrow,” she says.
So, how do you get started? Essentially, a unit trust is run by a fund manager. While the manager will demand a fee for his service, this fee will usually depend on the management company used or the unit trust that is selected. Note that there are often upfront fees, ongoing fees over the lifetime of the investment vehicle and sometimes even a performance fee, based on how well the fund has performed.
This all depends on the management company. It is advisable to do your research before investing – insist that all fees are disclosed upfront before purchasing any investment vehicle.
However, by using a fund manager, you’ll find the right unit trust that will meet your unique financial needs and help you to achieve your desired outcomes.
This article was featured in the 16 July 2015 edition of finweek. Buy and download the magazine here.
