buying unit trusts

[D3x!]

hi all,

so I am not really an investment fundi but want to put some money into some unit trusts.

my question is, does it make a large impact on when you do this? I.e I see the unit costs fluctuating daily, I assume due to performance, likely linked to the rands performance if I follow last week?

so if that is true should I wait until the rand gains back some ground?

 

[froot]

Unit trusts is not a short term thing. Ideally you want to see the long-term effect.
But yes, what happens today and tomorrow and the day after that affects what your investment is worth.

It does matter when you do it.... but the thing is, the only "wrong time" to jump in, is when the ship is going down.
It's good to invest when it's probably at its lowest, or when things look good - it can only [probably, no guarantees of course] go up.

For right now, I think it's not a bad time to put money in. The worst of the strike fears are over, so there is no major risk to lose a lot of money.

Remember also that you can put your money into one or more of several unit trusts, each with their own risk profile, so do some research on what you are interested in and take it from there.

 

[patrick]

I've also wondered the same. With a lot of people buying them after payday, is there any noticeable climb between the middle of the month and the end of the month?

 

[^^vampire^^]

I got my self the FNB Growth Fund from FNB which I pay R500 into the beginning of every month. The fees are quite high at roughly R50 per month but I have contributed for 22 months which means I have effectively put in R9900.00 and it is worth R12267.53. That's a performance of about R2367.53 or 23.67% which isn't too bad I think. Accounting for fees I've still made R1267.53.

I suppose it just depends the kind of unit trust you invest into.

 

[froot]

@patrick
For the average Joe there is no correlation between buying unit trusts and the time at which they are bought.
The institution takes the money you buy in with, distributes it in the portfolio and basically at the end of the day, is acting as the middleman between you and the actual shares. So the "climb/drop" is dependant on the portfolio value which is made up of the share price. Nothing else.

In my case I don't pay any monthly fees but the fees come out of the capital, say 1% or whatever. It works pretty well for me.

@ ^^vampire^^
So you made (taking it over 24 months and not 22) 14% on your investment over two years, after expenses.
Inflation is what, 6.5% pa?
That means you scored 0.5% above it, which is what you actually made if you take inflation into consideration. Now you still need to take your dividend tax into consideration too, in which case it will be a bit less.

 

[ClintZA]

Why are you referring to rand performance in reference to unit trusts? Although some funds will no doubt be indirectly affected by the strength or weakness of the rand many others are not. Unless you are considering investing in a dollar or euro based fund?

Remember unit trusts (now referred to as collective investments) are merely investment vehicles whereby investor's funds are pooled together and the fund manager then invests these funds into different assets (equity, bonds, property, cash and their derivatives) according to the chosen fund's mandate (ie an equity fund would invest primarily in equities, property fund in property etc). The amount you invest will buy you units in this investment pool. The price of each unit is dictated by the market value of the asset that have been invested in within the fund. As the market value of the asset increase so does the unit price.

Trying to time the markets is not the way to go. It works well in hindsight but the reality is that you are unlikely to time the market accurately every time. Below are some numbers regarding timing the market that were shared at an investment meeting a few years back. This does not apply directly to South African unit trusts specifically but the principle would obviously remain the same:


Black Monday, October 19th 1987
Dow Jones lost 22.6% in one day and a further 18% the next
How long did it take to recover?

It took just under 2 years to recover, but 1987 itself was still a positive year for the index

9/11, September 11th, 2001
NYSE closed for 4 trading days (longest closure in history)
Dow Jones lost just under 7% in that time and declined a further 6,5% in the days after it re-opened

How long did it take to recover?
Recovered to pre-9/11 levels by mid-November
The JSE recovered in 8 days


The question to be asked is when would you have decided to re-enter the market? Would you have missed part of the recovery? Below is a table showing the effect of missing the best performance days over 10 years on the MSCI Europe index versus remaining fully invested:

If you could just hit all the good days and miss all the bad ones that would be great but many spend their lives trying to do this and fail so the likelihood of a lay person getting it right in unlikely. The old adage goes that it is not timing the market that is important but rather time in the market.

 

[biena]

I've also wondered the same. With a lot of people buying them after payday, is there any noticeable climb between the middle of the month and the end of the month?

What does make a difference is when a trust declares dividends, just before it tends to rise, after if falls. No idea what the new tax on dividends is going to cause in this case.