Deciding to invest in shares or unit trusts is a brave step for many people, especially those who are a little risk-averse. Though these investment instruments may be more risky that just depositing money in the bank, the potential returns can transform your small savings into a sizeable fund that could provide you with the lifestyle you strive for and secure your financial future well into retirement.
Most clients opt to use the services of a broker when buying shares, and if your broker also acts as a sound financial advisor you should receive quality financial guidance. When it comes to shares, most financial services companies offer a range of funds – each one with a different level of risk and expected return. There are two general categories of fund that clients should be aware of: actively managed funds and passive funds.
Allan Gray shows a very telling graph: An amount of R10 000 invested in the company’s actively managed fund in 1974 would be worth a whopping R90 Million today. By contrast, the same amount invested in a passive fund (in this case the JSE all-share index) would be worth only R4 Million. These figures show just how big a difference actively managed funds can make to your net worth over time.
What makes an actively managed fund so much better? While passive funds use your investment capital to buy shares and bonds and simply report their value to you each year, actively managed funds are constantly analysing the market to find shares that will give you strong returns while managing risk effectively. That way, your investment is more likely to ride the ups and downs in the market without being stripped of its value when the market loses value.
Speak to your financial advisor about investing in actively managed funds – a giant leap towards wealth creation.