Portfolio fees must fall – finance expert
UNIVERSITY EDUCATION SAVINGS: AN EARLY, LOW-COST START IS ESSENTIAL Mduduzi Luthuli, co-founder and an executive director of Luthuli Capital, advises a reader who wants to invest a lump sum in his son’s university education.
Key to better investment returns is lower costs, says advisor.
A good rule of thumb is to be comfortable losing half the money you have in equities in any given year.
Question: My wife and I recently received a R100 000 windfall and we’d like to invest it in our son’s university education, which is still about 15 years away. How best can we invest it?
Answer: An investment is a living entity, influenced by various factors and is constantly evolving.
It’s important to have a professional do the work and to devise a distinct investment strategy.
There will be bad times – of variable performance or capital loss over a 15-year period. The truth is that simple. Markets go up; markets go down. An investment strategy determines how much money you make in a bull market and how much of that growth you retain in a bear market.
Yours is a difficult question because I don’t know the following factors:
Your age, your risk profile, your needs in an emergency, your tax plans or your current asset class exposure.
So let’s focus on what should drive your decision making process. The short answer is speak to a qualified wealth manager.
For the long answer, I’ll touch on two points.
Your investing objective
You may want fast growth and high risk, or just to preserve your capital. Working on nothing else but your investment term of 15 years, I would suggest opting to take aggressive risks for higher gains. Growth should be your goal.
Aggressive investors put more of their money in equities instead of safer debt securities. With 15 years, the chance of gaining money in the equity market is better. And don’t panic when the market turns. It will turn again.
A good rule of thumb is to be comfortable losing half the money you have in equities in any given year.
Fees, fees, fees
Did I mention fees? You need to watch fees like a hawk. What fees justify value? The quickest way to guarantee an increase in investment returns is to lower costs. Morningstar found that cost is the single best predictor of a mutual fund’s future return.
A Vanguard principle says markets are unpredictable; costs are forever – the lower your costs, the greater your share of an investment’s return. And research suggests that lower-cost investments have tended to outperform higher-cost alternatives. You can’t control the markets, but you can control the bite of costs and taxes.
Speak to a wealth manager for further advice.
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