Investment Insights

HOW YOUR UNIT TRUST PORTFOLIO TIES INTO YOUR LONG-TERM INVESTMENT PORTFOLIO

It goes without saying that the best type of portfolio is a well-diversified one. If possible, your overall wealth should comprise some property, some commodities like gold and stocks and bonds. If you do not already have this mix, you should ideally be working your way towards attaining it.

Unit trusts are a healthy addition to your long-term investment portfolio, and a veritable option to consider as you plan your investments for the year. Some of the reasons to consider unit trusts include:

1. Short-term emergency fund: It is all good and well to plan for the future; however, life tends to throw curve balls, like your car malfunctioning on a Monday morning, a leaking roof etc. When such challenges happen, it is imperative to have some easily accessible coffers to help you arrest the situation duly. In the absence of this short term buffer, one tends to go into debts that have the effect of reducing your saving/investment capacity. Unit trusts are a good store of value for your cash, while remaining easily accessible. In addition, unlike cash, unit trusts can keep up with inflation or at-least help you retain some of your purchasing power in spite of inflation.
2. Diversification: Needless to say, diversification is the goal when investing. However, getting a good asset mix can take years, if not decades. As an example, relative to other asset classes, property tends to have particularly high barriers to entry, in terms of price. For an individual investor, this might mean that their ambition to add property for the purposes of diversification might be many years in the making. However, unit trusts tend to be inherently diversified in their nature. For example, a share-based unit trust tends to have multiple (more than 20) holdings, and these are typically spread out through different industries. This means for the individual investor that they get their diversification going from the on-set, when investing in unit trusts.
3. Cheaper alternative: Every individual tends to have their own appetite for each asset class of investing. For instance, some investors might be inclined to invest in property, while not being financially ready to make a large property purchase. There are specialist unit trusts that invest in, say, healthcare, or property, or commodities that could help get these individuals invested in their asset class of choice at a fraction of the cost of investing directly. Investing this way could also teach an individual valuable lessons about their preferred asset classes, such as buying trends and market cycles.

Unit trusts are a valuable addition to your portfolio for both the short-term and long-term and can be a good store of value while you weigh your options. They are also more accessible due to much lower entry costs. Consider this investment option when planning your portfolio, and do not hesitate to research more to get the insight you need to make a decision.

Happy investing!

This article was authored by Kgori Capital, a leading asset management firm.