Family investing: a balancing act

Last updated on 13th December, 2017 at 10:04 am

Your family is growing and the word ‘investment’ has entered your thoughts. But how do you balance the need to grow your money and gain financial security with the demands of a family?

Few people are lucky enough to inherit a fortune from a rich family member, let alone win the jackpot in the lottery. Most of us need to invest cleverly to gain financial security and reach certain goals over the long term. Investing is easy and there are an abundance of investment vehicles available. But when you’ve decided on the plan that suits your needs best, you need the patience and perseverance to reach your financial end-goal. Investment is a long-term exercise if you want the best yields, but emergencies do happen and there are also a number of investment options for people who need to have quick access to their funds. An investor with a family might consider these options…

Unit trusts

A unit trust is as its name suggests – a fund that’s legally set up as a trust and you own a number of units in a particular fund. It’s the ideal investment vehicle for someone who wants access to his or her funds immediately when needed. Unit trusts also cater for people with different risk appetites and your financial adviser will invest your money in accordance with your specific risk profile.

Exchange Traded Funds

An exchange-traded fund (ETF) is an investment fund traded on stock exchanges, much like stocks. An ETF holds multiple assets such as stocks, commodities or bonds, and trades close to its nett asset value over the course of the trading day. When you buy shares of an ETF, you are buying shares of a portfolio that tracks the yield and return of a particular index. You have to be very market-wise and have an active interest in the stock market because investments in these products take place without the help of a financial adviser. ETFs are, however, an easy, low-cost way to have exposure to different market segments because the performance and administrative fees are very low. Another plus is that you can buy and sell ETFs anytime during the day, so you have easy access to your funds.

Money market funds

This is a low-risk unit trust investment. Your money is invested in low-risk, short-term interest rate securities. These funds have no initial charges and administration fees are low. You’ll also have quick access to your money, but remember it’s a low-risk, low-yield investment vehicle and not ideal over the long term. It can be used to ‘park’ your cash for 12 months or shorter.

Endowments

Endowments are a good investment for high-income earners who are not too concerned about having urgent access to their funds. Endowments are taxed at a flat rate for individuals. If your marginal tax rate is higher than 30%, endowments are attractive as an investment, because any interest income from the endowment would be taxed at 30%, compared to the maximum marginal rate of 41% for individuals. One aspect to bear in mind is that you’ll have restricted access to your funds as legislation allows you to only make one withdrawal within a five-year period.

By Liesl Peyper

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