If National Savings Month has inspired you to save, a unit trust fund enables inexperienced investors to invest in the stock market, and diligent investors can reap the rewards that result from the long-term capital growth of shares and other listed instruments.
Calculations by one unit trust company show that saving 10 percent of a monthly salary of R10 000 for 10 years in a multi-asset fund could yield more than R300 000 after 10 years and R8.2 million after 30 years.
With a unit trust fund, a professional fund manager manages your portfolio on your behalf, and unit trust funds invest in a range of investments. A multi-asset fund invests in the different asset classes of shares, bonds, the money market and listed property, so that the returns are more consistent and less subject to the ups and downs of a particular asset class.
Unit trust funds that invest in South African financial markets can also invest up to 25 percent of their assets offshore.
Tony Cadle, the head of portfolio construction at Ashburton Investments, considered what a person who earns R10 000 a month could achieve by investing 10 percent of his or her income a month in a multi-asset fund.
For his calculations, Cadle used the average annual return of the funds in the South African multi-asset high-equity sub-category (multi-asset funds that can invest up to 75 percent in shares) over the past 20 years. This return was 14.64 percent. Cadle also assumed that your salary would increase by an inflation-related six percent each year and that you would increase your contributions to your unit trust fund accordingly.
After 10 years, your investment would have grown to R318 779, and if you continued investing throughout your working life for 30 years, you would have R8.2 million (see the graphs – link at the end of this article).
Cadle also considered how much you need to save to be self-sufficient. He says the answer largely depends on how much you will spend. However, as a rule of thumb, you can assume you will need a lump sum equal to 20 times your annual salary. Cadle calculated how long it would take to reach that goal if you saved 10 percent, 20 percent or 30 percent of your salary each month.
Investing 10 percent of your salary in a multi-asset fund for just less than 22 years could do the trick.