Unit trusts a good choice for saving
WITH July being savings month in South Africa, we have decided to once again share ideas that could benefit investing groups in terms of selecting better investment vehicles for their investment goals.
We emphasise that current and past ideas were very conservative, and resulted in lower growth on investments. We also highlight the characteristics of some possible solutions, and leave our reader to decide which options would suit their stokvel best.
Call, deposit and money market accounts:
These have been used vastly over the years as a “safe” solution by investing groups. However, the safety has come at the very big cost of inflation, which wiped away returns, especially in low interestrate environments.
These are only recommended for short-term savers, who do not want to accept any losses, but ironically, such accounts result in inflationrelated losses, which are like a “cancer” for investors, stealing returns quietly and unnoticed.
As Inkunzi Wealth Group, we do not encourage people to invest in such products because, for example, the annual interest rate on these can be a maximum of 3.6%, given inflation currently at 6.1%.
Stokvels actually lose money by investing here, but the comfort they get is the fact that no capital losses apply here. Shares, including BEE shares: These instruments have been used historically by people targeting to get above-inflation returns. They are suited to people with higher risk preference, meaning that investing in shares comes with a higher potential of capital loss.
Many investors always mention recessions, depressions and other negative market experiences associated with investing in direct shares, and this has left a big portion of stokvels clutching onto that belief. However, it must be said that some groups that invested in shares like MTN Zakhele, Phuthuma Nathi, Capitec, Naspers and some bank stocks, did make money over the years. Sadly, only a minority of stokvels have access to formal share markets and to new listings that come to the JSE regularly.
Despite all the recessions and sharp downturns experienced, markets have taught all of us one lesson, “in the long run, share prices always go up”. The risk of loss of capital needs to be assessed though when trading in these securities. We emphasise that stokvels with long-term investment views should get advice on how they can benefit from this type of investment. Unit trusts: These are very famous options for most investors, but have not necessarily been accepted widely by stokvels because of the “knowledge gap”, as well as limited access to good advice. We expect this to change rapidly as information becomes more readily available.
The idea here was to limit investment risk and the need to create baskets of shares that aimed to achieve a certain level of return, and match client requirements.
The biggest challenge in our experience here is that there are almost 2 000 options to choose from, and this makes it difficult for most groups to decide. We, however, advocate for this investment type as a better alternative than most, due to the ability to achieve global diversification and minimise risk.
For investment requirements or more information contact Inkunzi Wealth Group on 087-160-0018 or e-mail