A Fin24 user who doesn’t know how to handle his money has made investment one of his New Year’s resolutions. He writes:
Please help. I'm a young man who is an electrician by profession, but I have a problem with how to handle money. So I have made investment one of my resolutions for this year.
I would like to invest say R20 000 with any investment institute in the Western Cape that will make my money grow for the rest of the year.
So I’m asking if you can give advice on how should I invest? Where can I get the best returns?Danelle van Heerde, head: advice processes and tools at Sanlam responds:
Before you make an investment, you need to think about what you want to achieve with it. This will help you find the most appropriate investment solution.
• Would you get anxious if the value of your investment goes up and down often?
• Can you afford to lose some of the money?
• How long do you want to invest it for?
• Would you like to be able to access the money during the investment term, for instance in case of emergency?
A unit trust is probably the most appropriate investment option for you, but you should ideally invest for at least three to five years in a unit trust.
Unit trusts are easy to buy or sell and are generally cost effective. You should compare the fees of different unit trust funds before you invest, as they can differ significantly.
Different unit trust funds have different investment mandates. This could for example be: investing only in equities; investing in a balanced portfolio with a mix of different assets, including equities, bonds and cash; investing only in the money market (similar to cash).
The mandate of a fund determines how risky it is. A fund with higher risk, e g an equity fund, has more variable returns and the value could go up and down a lot.
It is expected to provide higher returns over a long term, but return over a shorter term could be negative. A fund with a lower risk investment mandate would provide more stable, lower returns.
Historically, equity funds have provided a long-term return of about 7% above inflation, before fees and taxes. In comparison, balanced funds provided a return of about 5% above inflation and money market funds about 2% above inflation.
You will be able to get specific information from unit trust providers, e g on their websites, or from a registered financial adviser, who would also be able to help you determine which investment option would be most appropriate for you.
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