An investment option Millennials shouldn’t ignore

They’re the most misunderstood generation since the hippie movement turned on and tuned in the youth in the ‘60s. Not to mention the most photographed. But despite being masters of the internet, with all of its information at their fingertips, nearly 80% of millennials are not invested in the stock market, and 34% of  these non-investors say they “don’t know how” as the reason why, according to a Harris poll.

Things may be changing for this demographic faster than you can download the Pokémon GO app, but the investment challenges Millennials face aren’t unique from previous generations – they should be building their assets as early as possible to tap into the power of compound interest: as you save and invest, over time you earn interest on your interest, compounding your savings.  

Unit trusts are a very practical option for investing, allowing you to avoid prohibitive costs associated with constructing your own portfolio, while entrusting your savings to fund managers who are investment experts. Depending on your own goals, they will allocate your savings across a wide range of asset classes to achieve return targets based on the level of risk you are willing to take. They shift asset weightings as markets move over time to maximise gains, and avoid losses. 

Fall into this group and need some convincing? The good news is that you have time on your side. So, a modest monthly investment, starting  now, will offer great returns in the future when you work with a financial adviser.

So what is a unit trust?

It’s basically a portfolio or collection of assets into which many people invest and pool their money. When you invest you are allocated units according to the amount of money you invest and the price of the units on the day you buy them. The price is determined by the value of the assets being held in the unit trust.

What do they invest in?

The assets that the fund invests in are usually equities (a share in a company), bonds (a loan given to the government or corporation that yields interest), listed property (a share in a property company that owns buildings across retail, office, industrial, hospital and hotel sectors) and cash. Each unit trust  has a certain level of risk associated with it and a mandate, which prescribes what the fund may invest in..

What are the benefits?

Reasons bank managers aren’t afraid to promote unit trusts to customers include:

• Your money is safe. This is a highly regulated industry, regulated by the Financial Services Board, so the people handling your money can only make decisions based on these requirements. The safeguards and transparency put in place will give you peace of mind.

• There are a variety of funds to suit different investor risk appetites, time frames and goals. There are high-risk and low-risk unit trusts (the higher the risk, the higher the potential returns), many of which are very well diversified. The sheer number of unit trusts out there can be a bit overwhelming for an inexperienced investor, which is why it’s a good idea to get advice from a qualified financial adviser.

• They are easy for you to sell – there are no lock-in periods or waiting periods to get your money out. In fact, you will get your cash back the next day. This makes them a great savings vehicle for an emergency fund, or if you have short-term goals, like saving for a deposit on a property.

• You don’t have to invest huge amounts. By making a monthly investment from as little as R500 per month, you can build a large amount slowly. You can also decrease your contribution debit orders if you’re going through a tight patch. However, if you get a windfall (such as a bonus) you can also invest lump sums from R10,000.

• You only pay tax on your gains when you sell them. By contrast, individuals managing their own portfolio will incur taxes every time they sell an asset at a profit, like an individual stock or bond. 

If you aren’t already investing with Prudential, contact your Financial Adviser or our Client Services team on 0860 105 775 or at info@prudential.co.za