Is it even worth investing in equities any more?

Most of the money we manage for our clients is invested in unit trust funds. A unit trust fund is just the name given to a collection of financial items lumped together and managed by a dedicated person. So if you have money in a local equity unit trust fund, you actually own a number of shares in South African companies, and if you are invested in a money market unit trust, you own various types of cash instruments.

As an investor, you can buy shares directly on any stock exchange in the world; you do not have to invest via a unit trust fund. You can also invest your cash directly in a bank account or some type of longer-term deposit and sidestep the unit trust route. The benefit of investing via a unit trust, however, is that you do not need to decide which shares to buy or where your cash will get the best interest. These decisions are made for you by someone whose job it is to research companies and analyze markets.

The next question you might ask yourself, is why invest in shares at all? Why not just keep all my money in cash? Just look at the return shares have given me over the last four months: -5% in South Africa; -12% in the broader USA; and -20% in technology companies! If I  had all my money invested in cash, I could have received closer to 5% right here in South Africa.

But – how short and selective our memories are! If we just look back a bit, we will remember that shares in SA gave us a 24% return last year and both 2020 and 2019 were also positive years. Admittedly, SA was not the best place to be for equity investment over the last decade, but we also need to remember our good returns on our international shares. In 2021 the S&P500 gave us 28%; in 2020 it was 16%; and in 2019 it was 29%.

We have to understand that the only game in town for creating wealth over longer time periods is equities. Cash will just kill you slowly. We have to accept that equities will give us good periods and also very bad ones, but the average return over time will beat inflation – and cash. Buying the wrong shares can, however, cause you to lose the money you invested forever. Just look at what happened to Steinhoff and so many others, especially the unprofitable expensive shares currently losing their shorts in the USA. And that is why it is better to invest in shares via a unit trust fund, where the diversification and research will limit those terminal companies

 

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