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A Fin24 user wants to buy a house and invest a lump sum until such time. He writes:
I have a debit order of R500 going to a unit trust fund (a balanced plus fund) every month.
There is R60 000 that I would like to invest, but I am not sure where to invest it. I intend to buy a house within the next 12 months and I would want to access some of the money for a deposit.
I have been considering either the Satrix 40 or to simply put away the money in a bank savings account.
Matthew Chapman of NFB Financial Services Group responds:
First of all, it’s great to hear that you have a recurring debit order investment into a discretionary savings product.
It’s important to maintain a balance between retirement and discretionary savings as one builds up a retirement nest egg or accumulates wealth for other future capital outlays.
When providing financial advice, it is important to take your full financial situation into account. This would include income sources, current expenses, tax profile, assets, debt, investment portfolio makeup and exposure; as well as several other variables that would influence any recommendation.
For the purpose of this question in isolation, regarding the R60 000 investment, which you have earmarked for a property within the next 12 months, we would hesitate taking on any market risk.
We have seen large volatility spikes of late, with the JSE All-share index falling over 10% from the peak in early September to its low in mid-October and subsequently recovering over 8% at time of writing.
In general, it would not be in your best interest to take on any unnecessary short term risk for the time period in question. We usually recommend a period of five to seven years for the added gains to outweigh the short term volatility for investing in equities.
We would, therefore, look at a money market type of unit trust. These aren’t without risk, as we saw recently with some exposure to subordinated African Bank debt, but are substantially less volatile than portfolios with considerable levels of equity exposure.
If you feel you have an appetite for risk, then a cautious unit trust might allow for added returns over the aforementioned period. These funds allocate between the various asset classes including cash, bonds, equity, property and offshore, with a bias towards the interest yielding assets.
As this cannot be construed as formal financial advice, it would be in your interests to contact an independent financial adviser, who will be able to provide professional guidance with regards to your entire financial plan.
Disclaimer: Fin24 cannot be held liable for any investment decisions made based on the advice given by independent financial service providers. Under the ECT Act and to the fullest extent possible under the applicable law, Fin24 disclaims all responsibility or liability for any damages whatsoever resulting from the use of this site in any manner.
