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Unit trusts or shares: Where should you invest your money?

by , 07 March 2014

“How much of my portfolio should I invest in unit trusts or shares?” That's the question on nearly every South African investor's mind. The answer to it, however, is different from person to person based on a number of factors such as: How much capital you have? How risk-averse you are? If you're still working or are retired? Whether or not you are trying to diversify your portfolio? And what long-term financial goals you want to achieve? But there is ONE deciding factor that can help you decide on your investment mix. And today, we share it with you…

The secret to choosing a portfolio mix of equities and unit trusts that’s right for you

How old are you? (Come on be honest – this could make or break your nest egg!). The reason we ask is because age is the single most important factor in determining what your ideal mix between unit trust investing and shares investing should be.

Leon Kok of The South African Investor explains:

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How age can help you work out your portfolio mix between unit trusts and shares 

The 65 and older investor:
Your high personal remuneration might have ended and you’re probably on a pension of sorts, and relying on investment income to top up your pension. You may even be looking to your investment portfolio exclusively for income.

In this case, the bulk of your portfolio would probably need to be placed in fixed interest investments like fixed-interest unit trusts.

Your portfolio’s share exposure depends on the magnitude of your entire portfolio relative to your income needs.

A good rule of thumb for the average retiree managing his own portfolio, would be to have between 5% and 25% invested in shares and the rest should be spread across low-risk unit trust investments.

The 50-something investor:
With retirement looming, and with many people being either retrenched or forced into retirement early these days, you need to be a lot more discerning with your investments. Your aim should be to increase your balance between shares and reasonably risk-averse fixed interest unit trust investments.

You’re aiming for steady gains without the risks that are usually associated with them. Your ratio should be around 70% invested in shares and 30% invested in fixed interest unit trust investments.

The 40-something and younger investor:
The younger you are, the more you can afford to be fully invested in risk-weighted shares because in most cases you’re living off a salary and looking to make major capital gains. You’re still young enough to correct investment mistakes and recover from recessions, and you’re not dependent on your investment income. In fact, the more you have in resources, the more you’re able to pursue aggressive high-risk strategies.

So there you have it: Expert guidelines to help you decide what your portfolio mix between unit trusts and shares should be.

Unit trusts or shares: Where should you invest your money?
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