Publications
Partners
Johannesburg - An investment portfolio consisting of shares alone holds risks for the investor, but a portfolio that is overly conservative holds just as many risks.
In the past year's volatile markets investors who wanted to avoid the riskiness of the stock market seem to have exposed their portfolios to "reckless conservatism", said Nico Coetzee, head of sales at PPS Investments.
Coetzee said people who shifted their investments to money-market trusts in the first half of this year have missed a strong recovery in the equity market.
The market improved 8% in the second quarter of this year and almost 38% since the turnaround at the low point in March.
By moving investments to the money market people have not only missed the stock market's run, but have also invested in the money market at a time when the returns on money-market trusts came down, in keeping with interest rates.
For conservative investors Coetzee said a portfolio with a low exposure to equities, like a balanced unit trust or an asset-allocation trust is a better option than an investment in the money market.
In these trusts investors still have exposure to shares.
The trusts have the benefit of a good return if markets take off, while a portion of the portfolio rests in money markets.
"If the investment is distributed between cash and shares, the risk of losing money is smaller, and in the long run the yield is much better than that of an investment in cash," he reckoned.
People with all their funds invested in the money market should be aware of the tax implications.
The total return on a money-market trust is taxable, while only the cash portion of an investment in balanced and asset-allocation trusts is subject to tax.
Coetzee said unit trusts with limited exposure to shares are suitable investments for elderly or more conservative investors who do not wish to expose their money to too many risks, but do want to benefit from the rising stock market.
- Sake24.com
For more business news in Afrikaans, go to Sake24.com.
