Investing made simpler with new Index products.
By Eugene Maree
Founder of Harbour Advisory (Pty) Ltd FSP 44770, trading as Harbour Wealth
“The market, like the lord, helps those that help themselves but unlike the Lord it does not forgive those that know not what they do”
– Warren Buffet
You may never have heard this quote before, but chances are the fear of making a mistake with your money keeps you from the critical task of investing for your future. Good news is things are about to become a lot less scary with the arrival of ETF’s or passive/index funds.
Please don’t let me scare you with the acronym ETF, which stands for Exchange Traded Fund. It’s called that because you can buy it on the stock exchange or from your Financial Advisor on platforms like Wealthport and AOS. The beauty of these investment products, besides being around ¼ of the costs of conventional unit trusts, is that they are simple to use.
There are nearly 1000 unit trusts to choose from in South Africa and around 90 that specialize in investing exclusively in the shares of the stock exchange. These are called equity funds. Each of the managers uses a different investment style and their performance will vary depending on prevailing market conditions. This makes it hard to predict who the future winner will be, especially when you are sold compelling stories about what these managers have returned in the past. Unfortunately the past does not predict the future.
Relax! You don’t need the skills to pick one of these managers, as purchasing ETF’s or Passive/Index funds lets you buy the entire Stock Exchange or the top 40 shares in one investment acheter cialis en pharmacie. This is called an index or passive fund in that it replicates the collective wisdom of the market. If the All Share Index “ ALSI” goes up and you have an ALSI Index Fund your investment will go up the same less the fees and some tracking error. Active Unit Trust managers charge more to try to beat the index with varying degrees of success …some do but many don’t.
So if you’re not sure you can predict the next winner look at ETF and passive/index fund investing. Just less than 50% of the US retail investors can’t be wrong in the choice of where they invested last year. Chances are you will perform better than most managers and you will pay a lot less for your investments. In investing do not let the miracle of compounding apply to your costs!
If you understand your risk profile you can buy an ETF or Index fund for each asset class – Equities, Property, Bonds and Cash -so it is possible to construct an asset allocation portfolio that will match your appetite for risk using ETF’s. Asset Allocation according to Singer and Beebower’s research contributes 90% to your portfolio’s investment return, so focus on using cheap building blocks rather than trying to navigate through a universe of 1000 unit trusts.
If you’re not sure what risk profile you may be, speak to your financial advisor to get some help. In most cases good advice is worth every cent. Ask them about ETF’s and index funds, and introduce yourself to a simpler way of securing your financial future. For more information please feel free to visit our website www.harbourwealth.ota-demo.co.za or call any of our Independent Wealth Planners on 010 591 0528.