Should shares form a part of my overall financial portfolio?
Name withheld
Suzette von Broembsen, wealth manager at PSG Wealth, responds: There is no simple answer to this question without a risk analysis being done as we each have different financial objectives and risk tolerances. The general goal of investment is to earn interest/a return which will either provide an income and/or increase the value of the initial amount invested. The investment objective coupled with your individual investment constraints will determine the suitability of a particular financial instrument such as shares in your case.
The most important concept to understand is that buying shares (or equities) basically represents part ownership in a company. Investment in shares/equities should ideally be seen as a long-term investment. Over time, investors generally earn more on a portfolio of quality shares than when keeping their money in a savings account.
This is because money in a bank account will be aligned to the interest rate, and it’s unlikely that you’ll beat inflation by leaving your capital in the account over the long term. Tax efficiency is another advantage to consider, as equities are normally taxed more favourably than money in the bank.
Getting the guidance of a skilled financial adviser is important, as your exposure to equities should be tailored in line with your risk profile as part of a balanced portfolio.
INVESTING IN SHARES DIRECTLY
I'm a young professional who's just started my career. I really like the idea of trading shares and attaining an equity portfolio, but seeing how expensive shares are, what options do I have for equity exposure if I can't buy them directly?
Name withheld
Graham Lovely, wealth manager at PSG Wealth, responds: Unit trusts are the most accessible form of investment where you can gain up to 100% equity exposure within a fund. Depending on the institution you may invest as little as R500 per month or a lump sum of R10 000 to get started. There are several ways you can approach this and the best would be to speak to a qualified financial adviser because they would be able to guide you in terms of which funds to buy in accordance with your risk profile and goals.
Alternatively you could open an account online with a fund manager and specify the fund allocations yourself. Many financial institutions also offer multi-managed funds where they employ managers whose sole job it is to select and monitor funds which they then package into solutions to suit different needs.
There are many advantages to these solutions including diversification between asset classes (like equities, property, bonds and cash), across various geographies and even themes and styles of investing. You could also apply for an offshore fund which involves externalising cash or you could buy local feeder funds that feed into offshore funds. The help of an adviser would be valuable, as the investment universe is vast and can be a bit daunting.
These letters appeared in YOUR QUESTIONS ANSWERED in Saturday Insider on September 25, 2021. The regular monthly feature is sponsored by PSG Wealth. Email money queries to [email protected]
PERSONAL FINANCE