Posts Tagged ‘asset classes’

Shares or unit trust funds, or both?

Bongi has been working for a few years and is now financially stable enough to start investing. Should she invest in shares or unit trust funds, or both?

Foster Wealth answers:

Buying shares and building a successful portfolio is a full-time job.

In order to buy a share of a particular company, you would need to do research and learn about the company and understand its financial position and future prospects. Otherwise it’s just speculation.

We have so many brilliant fund managers in South Africa. We would suggest unit trust funds because she can get a well-diversified portfolio, managed by professionals.

She can also participate in more than just one asset class. Deciding which fund managers to go with and then which of their funds to use can be daunting, please contact us for guidance on setting up a solid investment portfolio.

Now that Bongi started investing, what are key indicators of a healthy market, and what should she look out for?

Foster Wealth answers:

Now that the she has started her investment journey, she will need to be more aware of noise vs. fundamental change in markets.

We need to acknowledge that a country’s economy and its financial markets are different and are driven by different things. Signs of a healthy economy include:

  • inflation rate being within target;
  • unemployment being as low as possible, if not zero (what a thought!); and
  • acceptable debt to GDP levels.

Financial markets (stock market, bond marke,t listed property market) are a bit more complicated. In short, we want to see that share prices are in line with the earnings of that company.

Our fund managers need to be aware of a large number of fundamental indicators:

  • They could also use a technical approach (this relates more to traders than to long-term investors), just think fancy charts!
  • Or be quants driven in their approach (think numbers and spreadsheets!)

It all comes down to the valuation of a share, bond or property. Then the fund manager will make a call to buy, sell or hold based on their philosophy. The tricky part of investing is that markets are often irrational, so something that is expensive keeps getting more expensive and when something is going at a great discount, it could be unpopular and just get increasingly cheaper, even though the company is very well-run.

So Bongi would want to check in with her advisor, probably annually, to make sure she is keeping her portfolio in line with her goals and making adjustments when necessary. She would also need to trust in her advisor and the fund managers that they will do what is rational over the long-term and that it will pay off to be patient and brave.

Bongi is planning on buying a house soon. How will investing in stocks help her to pay off her house?

Foster Wealth answers:

Bongi needs to determine for how long she is willing to invest. If she buys a house in the next year or so, she needs to be very conservative and perhaps the stock market is not the place for her. She would be better off in a stable/income fund. Even if she has a 5-year time horizon, picking specific stocks is a full-time job. We would recommend that she invests in unit trust funds where she can get a wide selection of different stocks, property and fixed income assets.

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