Best unit trusts over long term

WHAT UNIT TRUSTS SHOULD I INVEST IN FOR AN ‘EXTRA FUND’?

Q: What type of unit trust should I invest in to get maximum growth for the next 20-25 years? I’m 22 and would like an extra fund to use to retire early, buy a property, travel or start a business. If I invest a R50 000 lump sum and contribute R500 a month (increasing 10% a year), what would be the estimated value after 20 years in a moderate or aggressive fund? Dez Tswaile, of Masthead Financial Planning, answers: Unit trust investments generally have four main asset classes available to be invested in, domestically and offshore: cash/money market, bonds, equities and property.

Asset allocation is how an investment is spread across different asset classes (diversification) to achieve investment objectives. An ideal well-balanced investment portfolio will be diversified across asset classes: this exposes the portfolio to growth potential in the market, and offers some downside protection by removing the risk associated with being exposed to only one asset class.

Diversification refers to spreading your investment portfolio across different types of individual assets, sectors, regions, investment styles and asset classes. The aim is to select a collection of investment assets that, put together, have lower risk than any individual assets. Allocating your investments to a diverse group of assets may increase the overall portfolio return and remain positive, even if a particular asset makes a loss. The end result of different diversification methods is the same – total portfolio returns become less dependent on the performance of one particular share, sector, region, style or asset class.

The opposite of a diversified portfolio is a concentrated one. An extreme example would be if your portfolio is completely invested in one particular company, regardless of your conviction. If your view is correct, your concentrated portfolio will deliver better returns than a diversified one. If it’s incorrect, your portfolio will be severely punished.

With unit trusts, you can own a diversified portfolio in one of two ways:

1. Combine single asset class unit trusts, eg. general equity unit trust, bond unit trust and property unit trust (multi-fund

Opposite of diversified portfolio is a concentrated one.