House sold: invest the proceeds

A reader asks:

I want to invest the proceeds of the sale of my house (approximately R600 000). I have no debt and will require university fees in two-and-ahalf years. I want access to approximately R200 000 on short notice. Please advise where I can invest?

Sibonelo Ngema of Masthead Financial Planning answers:

This investment advice serves only as guidelines.

What needs to be determined is how much will most likely be needed for university and then invest that in a cash investment facility over the two years.

The R200 000 needs to be invested in cash because it’s needed at short notice.

The rest, depending on the risk profile, can be invested in a balanced fund or an equity fund for long-term growth.

Money market/unit trust

There are two money market options that come to mind: one offered through a bank and the other via a unit trust through insurance houses. Both options are relatively low risk. Costs are typically low, but there could be transaction fees. Be mindful of investment minimums as well as tiered interest rates.

Benefits of unit trusts

Your money is in safe hands.

The Financial Services Board regulates unit trusts and the professionals who make the choices for you.

Investment risk is usually lower.

A unit trust spreads your money across many investments. This means that if one investment doesn’t work out, you won’t lose all your savings.

They are easy to sell. If you need your money, you don’t need to give a long notice period.

It is simple to track how your investments are performing.

You can access your statement online, or find performance tables in the media. Your fund manager will also provide a regular update.

You don’t need huge sums to invest in big assets.

You can invest in lump sums or monthly debit orders. The latter usually start at around R500/month.

The best way to invest in unit trusts is directly through a low-cost unit trust provider. Charges erode returns, so the less you pay, the more cash will be left to grow.