How age might influence your choice of unit trust


With as little as R250 a month you can invest in a unit trust and start building a savings portfolio linked to the performance of listed stocks and other investment assets. Unit trusts offer a low-cost, low-barrier method to save towards your financial goals more effectively, without having to trade on the stock market personally.

It’s easy to buy into a unit trust, but harder to decide which fund is best for you. After all, as an investment based on stock performances, a unit trust doesn’t guarantee your capital. In extreme cases, the value could fall below the amount you’ve invested, although it generally recovers over time. The risk of this happening is greatly reduced if you choose an established, well managed unit trust fund, but it always remains a possibility.


Investing according to your preferred level of risk


This element of risk means that unit trusts are not the right solution for everyone. If you’re extremely averse to risk, a fixed deposit or savings account offering a known interest rate would be better to secure your capital, but the returns are typically lower than long-term returns from the stock market.

That’s where the appeal of unit trusts lies: they are effectively pre-formatted long-term investment funds that cater to savers of every kind. For instance, you can buy low-risk unit trust funds that offer steady but not spectacular returns, but if you’re looking for more aggressive growth, you’ll be able to find unit trust funds invested in high-growth stocks. Or if you need income from your investments, you can choose funds made up of dependable dividend-payers.


How unit trusts work


Unit trusts fall into a category called ‘collective investments’. Your money is invested collectively along with the contributions from all the other members of the unit trust. What you’re buying is a ‘unit’ in the fund, which is priced according to the performance of the underlying investments. You don't own a direct share in any of the companies that the fund has invested in, but the value of your investment goes up or down based on how those companies perform.

So, even though you don’t hold shares directly in listed companies, you still benefit from the investment expertise of top fund managers, at a much lower cost than if you’d bought the shares directly through a stockbroker.

There’s no shortage of unit trust options to choose from: there are literally thousands available to everyday investors. Nedgroup Investments partners with leading fund managers whose unit trust funds offer you plenty of choice and the peace of mind that you’re dealing with a trusted entity.


Although your financial goals may remain largely unchanged, your strategy should always adapt to conditions


Should your age affect your appetite for risk?


Finding the right unit trusts for your needs takes a bit of research, which you should do in consultation with a qualified financial advisor. A good starting point is to look at what stage of life you’re in. You might just be starting out in your career. Perhaps you have a young family. Or you’ve reached that stage where your children have grown up and moved out, and you have some spare cash you want to invest.

Age matters in this equation because your unit trust investments have more time to recover from market shocks if you start investing when you’re young. When you still have 30 or 40 years of investing ahead of you, it might be appropriate to opt for funds that trade higher risk for higher potential growth. This strategy aims to improve your chances of growing your investment faster than inflation by investing for at least 5 years. The longer you stay invested, the more likely it is that the peaks and dips of the market will show positive returns overall.

On the other hand, if you’re nearing retirement and will be living off your savings, it doesn’t make sense to place that money at risk. Lower-risk funds might be safer at this stage of your life, even though they can’t give the stronger returns that more risky assets might.


Assess risk by reading the fund fact sheet


How do you determine how risky a unit trust is? The fund manager or investment house offering the product publishes this information on their fund fact sheets. These documents are available for any reputable unit trust and reading a fund fact sheet is not difficult.

The question to ask yourself is: ‘Can I afford to lose some of this money in the short term?’ If the answer is: ‘Absolutely not,’ then it's best to look for a low-risk fund. If you’re not worried about price volatility in the short term because you’ll have time to recover from any market shocks, a high-risk fund could be more appropriate.

If you believe in hedging your bets, you could select a medium-risk fund that offers a more balanced approach.

Whichever way you go about it, remember that although your financial goals may remain largely unchanged, your strategy should always be adapting to conditions. You don’t want to be chopping and changing between unit trust funds, but you do want to make sure your portfolio reflects your risk appetite based on where you are on the road to retirement.


The responsibility for managing your finances begins on the day you earn your first rand and continues throughout your life. It’s never too late to start. Download The Essential Guide to Money Management to help you make better financial choices and see how your money can work for you.