This is how experts invest

Published on 26th February, 2020 at 02:54 pm

We asked financial experts how they’d invest R10 000 – and what motivates their choices. Here’s what they had to share.

“Consider need, accessibility and term of investment”

Jyoti Gopee-Mothie, financial planner at Pinnacle BlueStar

“Your investment vehicle should be selected based on four factors: need, accessibility, term of the investment and taxation of the investment (both present and future tax effects),” says Gopee-Mothie. Her top three choices each depend on suitability to long-term or short-term goals:

Direct shares
“Shares are volatile and therefore not suitable for short-term investments due to share price fluctuations,” she says. She prefers direct shares for long-term investment planning, which can easily be traded on the country’s most affordable trading platform, EasyEquities. If you’re unsure where to start, speak to your financial planner.

Unit trusts
Start or top up an emergency fund using a unit trust, suggests Gopee-Mothie. “These are suitable for temporarily parking your capital,” she explains. Because they’re unit-based portfolios, they’re less volatile than share portfolios. You have a bit more freedom with these, since there’s no fixed term for the investment, plus they offer competitive returns where short-term planning is concerned. Read this to learn more about the advantages of unit trusts.

Retirement annuity (RA)
Are you happy with the balance of your emergency fund? Consider building your tax efficiency by adding to your RA. “You can contribute up to 27.5% of your gross annual income to your retirement annuity to maximise on your tax rebate,” says Gopee-Mothie. Use this tool to calculate how much you need to save monthly to enjoy your retirement.

“The more your finances are in order and growing for you, the more choices you have with what to do with your time and your freedom”

Helena Conradie, CEO of Satrix

Before you invest, Conradie expresses how necessary it is to assess different areas of your life and whether they could do with the cash injection instead. If you have short-term debt or a mo rtgage on your house, the smart action to take could be to clear that debt, she says. “Do you have a cash-based emergency fund? If not, I’d put the R10 000 aside in an interest-bearing cash account so you have instant access to the money if you need it,” she adds. Once that’s taken care of, consider her top picks for investments:

Go tax-free
Like Gopee-Mothie, Conradie also suggests using a platform like EasyEquities, to open a tax-free or regular account, which is best suited to investors looking for a cost-effective, convenient way to invest their R10 000. SatrixNOW is another accessible option, allowing you to invest any amount you choose.

In for the long haul? Consider investing in equity
Split your investment in half, looking at Exchange Traded Funds (ETFs) for low cost, transparency and diversity in your investments. Conradie suggests the Satrix Top 40 for a local ETF, and a global rand-dominated ETF such as the Satrix MSCI World Equity Index Feeder Fund. Unsure about the difference between a unit trust and ETF? Read this.

For the risk averse
If you’d like to play it safer – perhaps retirement is around the corner – a fund manager can look at investing your money in a balanced fund. “Here, the fund manager spreads your investment across several diversified asset classes,” explains Conradie.

“Choosing an investment option is so individualised and personal”

Celeste Maddocks, a financial planner with Sanlam Professional Financial Services

“In my experience as a financial planner, no two clients have the same circumstances,” shares Maddocks. She lists factors such as current age, lifestyle, affordability, appetite for investment risk, religion (when it comes to fund selection) and goals as aspects to be considered before an individual chooses the most suitable product to invest in.

Unit trusts
“This would be my first option,” says Maddocks. “It is best suited to someone who has an appetite for risk and a basic understanding of the ups and downs of shares and the stock market.”

Perks include no penalties for early termination or partial withdrawals, and flexibility when it comes to selecting funds.

But, as Maddocks points out, there is a downside: “In my opinion, the main disadvantage is that you can’t place a beneficiary on the fund. This means it’s subject to estate duty and executor fees (where applicable) – plus, funds in a unit trust aren’t safe from creditors.”

Linked investment
A more tax-efficient route than unit trusts, linked investments do carry slightly higher fees, says Maddocks. “However, one can nominate a nominee for ownership – upon the owner’s death – and this plan can be ceded to a bank – if necessary,” she adds. “A unit trust investment cannot be ceded.”

Endowments
An endowment would appeal to a more conservative investor in the higher tax bracket (calculate the tax deductions you’ll pay here), particularly one who has accumulated debt and would like to protect their investment from creditors. “It allows for a beneficiary to be nominated and can therefore be excluded from estate duties and executor fees too,” Maddocks adds. While the investment does carry higher fees in admin costs, and a minimum term of five years, there are ways to make this work in your favour. “The Section 54 rule applies, in which one can take one loan or partial withdrawal within the term,” suggests Maddocks.

“Fund composition and fund performance also plays a major role when constructing an investment portfolio. For these reasons it is imperative to speak to a financial planner before making a hasty decision,” concludes Maddocks.

The views expressed in this article do not constitute financial advice. To book a meeting with a qualified financial planner to discuss the investment options best suited to your needs and goals, click here.