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HAVE YOU CHOSEN THE RIGHT UNIT TRUST?

January 14, 2021by Nicholas Kabaso

Come December 31st– bonus, retirement benefits, allowances etc will be staring at you. What to do? Decisions! Decisions! Decisions! Hate it or love it, decisions are a part of everything we do on a daily basis and taking investment choices should be no exception.

Roy Bennett once said “Your beliefs affect your choices. Your choices shape your actions. Your actions determine your results. The future you create depends upon the choices you make and the actions you take today.”

So why bother about choosing the right unit trust? Simply put when you invest in the right unit trust, you are less likely to be influenced by investment noise that may lead you to make knee-jerk decisions during the times of uncertainty.

Like any other investment choice, investing in unit trust requires you to carefully research on the available options and make sure you understand what you are getting yourself into. The key is in finding the right investment manager whose ethics and investment approach speaks to you, and who has a proven track record. As with any long term relationship, trust is at the center. If you trust your chosen manager, you will be less tempted to run for the hills if the market temporarily underperforms.

As part of their investment profiles unit trusts aim to mirror market performance in their asset allocation. Hence, the point that each unit trust will have a comparable market benchmark.

Therefore, once you find your preferred investment manager, acquaint yourself with his investment offering. Carefully “read the label” of your chosen unit trust. Ensure that your investment goals and timeframes correspond to the unit trust that you have chosen.

For instance, as a first point of interaction, I always ask my clients “what is your goal?” With a clearly defined goal, we then plan together on how we can succeed by assessing the various unit trust options available for them.

Start with a financial plan. As an investor have clear in mind what your financial journey looks like. Do not leave it to chance-No! Most licensed investment managers will help you structure your plans in case of need, feel free to seek help.

 Within your financial plan will be to clearly highlight your investment period, your expected rate of return, amounts of money you are investing (i.e. lump sum or growth funds) and expected drawdown amounts and periods.

Clearly defined investment periods are critical. It allows your investment manager to direct you to the right unit trust. Each unit trust has factsheets that are prepared as a short profile summary of the unit trust. The factsheets will usually tell you what the investment period is, or it may tell you whether the unit trust is suitable for a long or short term investment. Make sure the ideal investment period and the number of years for which you intend to invest are aligned. This will help you avoid needless switching of your portfolios which may at times cost you value.

Alert your investment manager on how the investments will be made, either a lump sum or in multiples. The investment manager will also want to know how you tend to drawdown on your investment. With such elements clearly discussed an appropriate unit trust will then be agreed with you in line with your financial plan.

It is also very imperative to highlight if the financial objectives are supposed to meet your children’s financial goals. This helps put the investment strategy in perspective and allow the investment manager plan accordingly.

With all that being said, you need to clearly hint on your expected returns. As an investor you need to decide whether you are able to stomach any expected ups and downs on the market. This will inform the sort of unit trust that may suit your profile. Further, by looking at the investment manager’s past performance you can also easily assess which unit trust is suitable for you.

Note that because unit trusts aim to mirror market performance and its inherent market dynamics, it is always important to note that periods of uncertainty are normal when investing in the short term. And usually no matter how good at times the investment strategy, some key macro-economic fundamentals may not easily be modeled and this may create a lag effect in the performance of the unit trust compared to market. This however, tends to correct over the medium to long term to render unit trust as a very competitive investment vehicle on the market.

Lastly, as an investment rule, “beware of the investment activity that produces applause; the great moves are usually greeted by yawns.” Always seek advice from your licensed investment advisor.

Nicholas Kabaso

ABC Unit Trust Head Office
Pioneers of Unit Trusts in Zambia.
Corner of Nasser/Church Roads,
Post box 37107, Lusaka, Zambia
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