Looking for better returns elsewhere

A Fin24 user, who has invested around R500 000 in various unit trusts, wants to know if he can earn better returns elsewhere. He writes:

Over the last four-and-a-half years I have managed to invest R500 000 in various unit trusts. They are now worth around R68 000. Could my money be earning me better returns elsewhere?

Matthew Chapman of NFB Financial Services Group responds:

I assume you mean R680 000 as opposed to R68 000, otherwise I could almost certainly provide better options for returns – put the money under your bed!

The annualised compound return over a four-and-a-half year period from R500 000 to R680 000, without additional contributions, is just over 7%. However, I would assume that you have been contributing various amounts at different intervals or recurring monthly/annual sums, amounting to R500 000.

This is where it becomes very difficult to answer your question. As you will see from the following comparison, consisting of five scenarios listed below, there is a large dispersion of annualised returns which in essence depend on when you invested the funds.

1) all upfront and no annual contributions;
2) R500 000 invested annually equally (R111 111 over 4.5 years) at the beginning of each year;
3) R500 000 invested annually equally (R111 111 over 4.5 years) at the end of each year;
4) R500 000 invested monthly equally (R9 259 over 4.5 years) at the beginning of each month;
5) R500 000 invested monthly equally (R9 259 over 4.5 years) at the end of each month.

To give you an indication of historical returns, the mean (average) return in the ASISA South African Equity General category over the past five years has been 14.52%, while the ASISA South African IB Money Market mean return has been 5.78% over the same period.

Without knowing what unit trusts you are invested in, it is difficult to assess the performance of your funds and make appropriate recommendations.

Over the long term equities as an asset class have historically outperformed cash, bonds and property.

Funds fully allocated to equities would therefore offer you the best chance for added returns, although it must be noted that we would ordinarily suggest a time frame of five to seven years to ride out the short-term volatility to take advantage of the increased returns.

It must however be noted that the local equity market is currently trading at levels considered to be expensive and we would err caution piling into equities at this point.

As this cannot be construed as formal financial advice, it would be in your interests to contact an independent financial adviser, who will be able to provide professional guidance with regards to your entire financial plan and risk profile.

Disclaimer: Fin24 cannot be held liable for any investment decisions made based on the advice given by independent financial service providers. Under the ECT Act and to the fullest extent possible under the applicable law, Fin24 disclaims all responsibility or liability for any damages whatsoever resulting from the use of this site in any manner.

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