Starting From Scratch - A Beginner's Guide To Investing in Unit Trusts

If, like me, you don't have the time or the money required to invest on the stock market it's a good idea to have a look at unit trusts. Basically, a unit trust is a simple and effective way of saving money over time. You don't need to have an in-depth knowledge of the market and is the perfect way of building a balanced investment portfolio.

How does it work?

Unit trusts allow a large group of people to pool their money into the JSE or money markets. Because your investments are spread out like this, the overall risk involved in trading on the JSE is reduced.

Each unit trust is managed by a fund manager and requires a certain minimum amount from you each month. This amount varies from about R100 - R500. Beginners are usually advised to invest in growth or value funds as these usually have very decent returns over time.

Be patient...

Unit trusts are not a short term thing! It is advised that you keep your unit trusts for a period of between 3-5 years in order to see a satisfactory return on it. It makes sense that because you aren't investing huge sums of money that you should give your investment time to mature and overcome the fluctuations of the stock market. Your wealth will grow slowly but you'll benefit from the long term growth of the market. It's an ideal way to save without just depositing your money in a bank account and leaving it there to earn small amounts of interest.

Where do I start?

There are two ways to go about this - you can either go through a financial advisor who invests on your behalf or you can buy/sell unit trusts online. As someone starting out I thought that it would probably be easier to go through someone who could just invest on my behalf but after seeing how much in commission and fees I would save by doing it online and by myself I quickly changed my mind. Just think about it, why should you pay someone else commission if you can do it directly with little fuss?

Most banks have unit trusts that you can directly invest in. I went to Equinox's website where I found everything I needed to know about unit trusts and how to actually invest in them online.

What do I need to do?

You need to register online and open a new account. You'll need to provide certain documents before you can open an account. These include: proof of identity and proof of address. These need to be certified by a Commissioner of Oaths - an easy way to do this is to go to your nearest police station - someone there will be able to certify your documents for you. Once this is done you'll be able to set up your own portfolio, fill in some personal details, add bank accounts and then you can start investing. It sounds simple enough and it is!

The benefits of going solo

By cutting out the middle man you save money in fees and commission. You can also issue instructions to buy, sell or switch unit trusts whenever you want. Monitor your portfolio and keep up to date with a wide range of information available on the site. Have the peace of mind that you're in control of your investments!

What are you waiting for?

Now that you know the basics there are no excuses for you to start investing! You don't need a large sum of money to start off with unit trusts and if after 5 years you've accumulated a nice sum of money you can always re-invest it. It's a great way for beginner investors to start getting involved in the investment environment and remember, the sooner you start investing the brighter your financial future looks!