Is inflation beating you?

High inflation can be a nightmare for savers, particularly when coupled with low savings interest rates.

In this guide we’re going to look at:

Inflation is simply to do with how much your money can buy.

Think about 10 years ago…

-How much did a loaf of bread cost?

-Or a liter of milk?

In all likelihood it cost less in Rands and Cents than it does now: that’s the effect of inflation.

Rate of inflation

If a liter of milk was 48c this time last year and 50c now, you could say that the annual rate of inflation on a liter of milk was just over 4%. If you then expanded that to measure the changes in price of lots of goods and services, you could see how the cost of living in general is going up, or coming down.

What is the effect of inflation on savings?

In order for your money to be “worth” the same amount, you will need the income you receive (in wages, pension, etc.) to increase by at least the rate of inflation each year.

Similarly, any “stored” wealth you have, such as your home (if you own it) or money you have invested will need to grow by at least the rate of inflation, too. If it doesn’t, your money will be losing value in real terms.

The rule is simple:

“After tax, the rate of interest you earn on your savings must be greater than the rate of inflation, in order for your money to actually be growing.”

Call Anglowealth today and let one of our qualified financial advisers help you beat inflation.

Understanding the basics of a unit trust.

Simply put, a unit trust fund is a way for you to invest your money.  You can invest in a unit trust fund through financial services providers such as a broker; an Investment Management Company or in some cases through your bank.

A unit trust fund is a pooled resource, which means that it allows a group of investors to combine their cash and invest it.  Think of it like going in on a group gift. Taken altogether, those investments are called the fund’s assets.

So how does it work?

A unit trust fund is made up of equal shares which are called “units”; these “units” have a price called a Net Asset Value (NAV). 

Take the following example:  Invest R1 000 in a fund with an NAV of R118.74, and you will own 8.42 units. (R1 000/R118.74 = 8.42.)

While you as an individual invest in a unit trust fund, the fund itself is run by a fund manager, whose aim is to grow the overall value of unit trust fund.  The fund manager does this by investing the fund’s assets, usually by buying stocks, bonds, or a combination of these two securities which are listed on the Stock Exchange.  (Some unit trust funds can buy more complicated security types.)  These stocks or bonds are often referred to as a fund’s “holdings” and all of a fund’s holdings together are its “portfolio.”

A fund’s type depends on the kinds of securities it holds. For example, a small-company stock fund invests in the stocks of small companies. What you get as an investor or shareholder is a portion of that portfolio. Regardless of how much or how little you invest, your shares are the portfolio in miniature.

For example, the Momentum small/Mid cap unit trusts’ three largest stock holdings are Life healthcare (5.33% of its portfolio as of June 30, 2012), Pioneer Food Group(3.36%), and Spar Group (3.41%). A R1000 investment in that fund means that you own about R53.30 of Life Healthcare, R33.60 of Pioneer, and R34.10 of Spar.

 

What are the benefits?

1.Don’t demand large up-front investments; you can make a once off lump sum investment or you can choose to invest a small amount on a monthly basis

2. Easy to buy and sell

3.Well regulated

4. Provide professional money management

 

What are the drawbacks?

1.There are now more unit trusts in the world than there are stocks. Choosing a unit trust can be overwhelming when faced with so much choice

2. Not all unit trusts are created equal

-Not all money managers are able to produce good returns for their investors

-Some unit trusts can charge too much money

-Unit trusts invest in a wide range of securities with different risk profiles

3. Not as liquid as other types of investments. Unit trusts usually take at least a day to liquidate

Source: (Morningstar)

Contact Anglowealth today to start investing in South Africas top Unit trust Funds.

Why invest in property funds?

If you’ve ever had a chat with friends or family about investing, chances are you’ve been advised to get into property. While it’s a truly low-risk investment alternative, real estate may seem difficult to get started in for a lot of people who feel daunted by the escalating property prices.

The alternative to owning a physical property is to invest in the real estate market through property funds. A property fund is a mutual fund that invests in publicly-listed real estate companies. It gives an individual the opportunity to invest in a range of properties through the purchase of stock. Property funds buy you a stake in real estate companies listed on the Johannesburg Stock Exchange (JSE) – saving you the headache of maintaining property and dealing with dodgy tenants.

  1. Headache free – invest in property, without having to deal with tenants, or property maintenance yourself
  2. Great returns – exposure to the growth of the shares, dividend payouts, underpinned by capital growth on the assets
  3. Exposure to offshore property markets – hedge against currency volatility
  4. Low barriers to entry in to these funds
  5. Funds are liquid and can be paid out within 7 working days
  6. No need to pay transfer costs and conveyance fees

Contact us today to find out how you can start investing in property funds.