When should I invest? What is the minimum time period to invest? How do I invest? Must I invest in equities? Or should I rather invest in property? These are some of the questions I am often asked.
The term of your investment will determine the investment vehicle most suitable for you. For an investment longer than six months, I would recommend an investment vehicle rather than a savings account. The vehicle will depend on the aim and term of the investment. For example, if saving for retirement, the most suitable vehicles are retirement annuities, provident or pension funds. All three vehicles are designed for retirement as their premiums are tax friendly (there is no tax payable on the growth of the investment) and they are protected from creditors.
At retirement, a living annuity is the most suitable as the lump sum is invested in unit trusts and an income can be paid to the investor. The investment continues to grow during retirement, enabling the retiree to draw an income for his or her lifetime. If structured correctly, the retiree’s income can increase annually or two-yearly with inflation. The living annuity offers the retiree growth through exposure to several unit trusts on a LISP. A LISP is a Linked Investment Service Provider, which is an independent investment company that offers investors access to unit trusts across a number of different management companies. Investors benefit from being able to manage a single portfolio across a number of companies.
I advise clients who have a short investment term and want flexibility to invest in a flexible unit trust investment. A flexible unit trust portfolio is fully liquid and can be repurchased at any stage, with no penalties. Clients have the option of investing in any unit trusts offered by the LISP. An endowment vehicle is also a short term investment period but the term is fixed for 5 or 10 years. Unlike the flexible unit trust portfolio, where the growth is taxed in the client’s hands, the endowments growth is taxed at 30%. If a beneficiary is named on an endowment policy, no executor fees is paid at death, unlike a flexible unit trust, on which executor fees will be paid.
The most common questions people ask are: – what unit trusts should I invest in? Should I invest in local equities (i.e. the South African stock market) or should I invest in bonds or property? The real questions people should be asking: what is the term of my investment? How much risk can I stomach on my investment and what is the purpose of my investment? If the term is short and for a specific purpose, I would recommend a more moderate asset class mix. If the term is longer and you have time to wait out fluctuations in the market, a more aggressive unit class mix would be suitable.
Asset classes range from local and offshore equities, local and offshore property to local and offshore bonds and cash. Investing in offshore asset classes is advisable for most clients given that most of our assets are held in South African Rand – our properties and retirement funds. I advise clients to diversify their assets across different asset classes and countries. Fortunately it is easy enough to do as there are unit trusts designed to suit every client and their specific investment needs, risk profile and investment term.
Decide first the aim, intention and term of your investment and the rest will fall into place.
powered by