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CURRENCY risk may be the key factor to consider for a group of friends who want to invest for a holiday abroad.
A Fin24 user writes:
We're a group of friends who want to start a savings club. The goal is to help us with our expenses for a trip to the US in July 2013.
Could you give some advice as to which would be the best investment vehicles? We are 10 people, who will each contribute R500 per month.
Ronald King, director of financial planning at PSG Konsult, responds:
When starting an investment club, do ensure that the right structure is used. You should draft a proper constitution to determine who makes the investment decisions, what is the aim of the club and what investments are allowed.
Unfortunately, July 2013 is not so far away in terms of an investment horizon.
Care should therefore be given not to take too high a risk in the portfolio, as there is limited time to recoup any potential losses if another market crash occurs.
What is, however, clear is that these funds will be used abroad and at present the rand is extremely strong.
The most important investment decision is therefore to protect against a possible currency depreciation. If the rand drops from R7/$ to R10, that is a close to 50% fall which can hit the dollar value of your investment significantly.
A low to medium equity offshore fund might be the answer.
- Fin24
A Fin24 user writes:
We're a group of friends who want to start a savings club. The goal is to help us with our expenses for a trip to the US in July 2013.
Could you give some advice as to which would be the best investment vehicles? We are 10 people, who will each contribute R500 per month.
Ronald King, director of financial planning at PSG Konsult, responds:
When starting an investment club, do ensure that the right structure is used. You should draft a proper constitution to determine who makes the investment decisions, what is the aim of the club and what investments are allowed.
Unfortunately, July 2013 is not so far away in terms of an investment horizon.
Care should therefore be given not to take too high a risk in the portfolio, as there is limited time to recoup any potential losses if another market crash occurs.
What is, however, clear is that these funds will be used abroad and at present the rand is extremely strong.
The most important investment decision is therefore to protect against a possible currency depreciation. If the rand drops from R7/$ to R10, that is a close to 50% fall which can hit the dollar value of your investment significantly.
A low to medium equity offshore fund might be the answer.
- Fin24
