I am a masters student who has inherited R200 000. I would really like to invest it as I’m not happy with it just sitting in my bank account. However, I’m not too sure what the best way forward is. Please assist.
There are several factors that need to be considered before embarking on your investment journey.
The time horizon is used to determine the amount of risk you can take and the required availability of the funds. It is important to determine your intentions. Are you wanting to invest for a period of five years, perhaps with a 10-year view? This is important because we need to look at the tax implications that might be incurred at the end of the term. If, for instance, you invest in a unit trust, then in five years’ time there might be capital gains tax implications. You also need to consider if you will want to reinvest into another product after the initial term, and plan accordingly.
Your risk profiling refers to your attitude and your tolerance towards risk. If your risk tolerance is low, then allocations to high income-generating assets would be considered. If your risk profile is medium, then a combination of all asset classes would be considered. If, however, your risk profile is high, then exposure to high-risk assets – like equities, both locally and globally – would be considered.
Types of investment
Unit trust investment portfolios are constructed according to the above-mentioned risk profile. This is a highly liquid investment, and portfolios can be changed according to your risk profile or market changes. Gains are taxed according to your tax profile. You can add to the investment on an ad hoc or regular basis. Similarly, investors can take regular or ad hoc withdrawals from the investment.
Exchange-traded funds (ETFs)
These are similar to unit trust funds, except that this is a passive investment vehicle that tracks a certain index and is listed on the securities exchange.
A share portfolio offers investors the opportunity to gain exposure to listed shares. An investment like this allows the client to gain either diversified or concentrated exposure to the equity market, should the client’s risk profile, as well as their liquidity requirement, allow for such an investment.
All the above should be considered before any funds are invested. I know that I have put forward more questions than answers, but financial planning is a holistic process, and all angles need to be thoroughly considered before making your choice.
I would highly recommend that you consult a financial advisor to assist you in making this decision. Your financial advisor will assist you in constructing a portfolio that works specifically for your circumstances. There’s no one-size-fits-all solution or answer when it comes to investing.