Investment could be too good to be true | Fin24

Investment could be too good to be true

Dec 11 2014 15:55

A Fin24 user is looking for a good investment for a period of two years. He writes:

I have recently sold my assets and have R2 500 000 which I will not be needing for the next two years.

Is it advisable to invest the funds in an 11% guaranteed return or should I invest the funds in a unit trust for the period of two or three years.

Where will I get the best return on my money? I don't want to buy another asset as it comes with a lot of headaches.

READ: Searching for safe, inflation beating investment

Fin24 asked two experts for their views.

Matthew Hunter, head of savings and investments at Absa retail banking, responds:  

Managing your investments is an enormously complex job and this is why it is almost always a good idea to seek financial advice from an expert.

A financial adviser will help you determine your life stage, financial goals and risk appetite. From this, you will be able to work out a plan that will help you reach those goals to ensure you are making the most of your investment.

That said, it may be worth mentioning that the current risk–free return is 5.5 % and we would advise you to be cautious of a guaranteed return of 11%.

The question to ask is twofold: Who is underwriting the guarantee and what risk is associated with the return?

In terms of the unit trust investment, you furthermore indicated that you only have two years before you need to access the funds.

Two years is not adequate to ensure real capital growth, mainly due to market volatility. A unit trust investment would be subject to some level of risk, especially in the short term.

A 11% growth rate would, however, be possible if you invest the money over a 4 to 5 year period, following a moderate unit trust strategy.

You can contact Absa and you will be connected with a financial advisor in close proximity to where you stay.

READ: Investment 101

Mark Lapedus, head of product development at Liberty Investments, responds:

Thanks for your question on how you should be investing your assets of R2.5m for the next two to three years.

A unit trust is an investment vehicle that provides from the liquidity you might need within the next few years, is well regulated and offers a very wide choice of different funds.

Unit trust funds range from very conservative money market funds to more aggressive funds with a high allocation towards equity. I am not in a position to recommend which fund is most appropriate for you with the limited information given.

The other option you mentioned is a fund that guarantees 11% per month. I am not sure what investment you are referring to and the only caution I can give here is that it certainly sounds like something that is too good to be true.

At 11% per month return, your investment will double in value every seven months and after two years will have grown by more than 12 times. Before making any investment you should confirm some basic information about the provider and what regulatory approvals they have to satisfy yourself that your investment will be safe.

Without knowing many other details about you, including your age, your risk profile, your earnings and other assets or investments you may have, it isn’t possible to give you an answer to your question.
I would recommend that you arrange to see a qualified financial adviser who can assist you through the process.

They can make sure that you get appropriate advice and, very importantly, that you only buy products that are from reputable providers.

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.

investment  |  savings  |  money  |  money clinic


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