3 Reasons why you should invest in an Equity Fund

Why should millennials consider investing in equities?

In his article titled ”Defining generations: Where Millennials end and post-Millennials begin”, Michael Dimock describes millennials as anyone born between 1981 and 1996. Now if you were born in 1996, you will most likely be celebrating your 22nd birthday and entering the job market. What better way to start your career than with an investment plan?

Good financial planning dictates that we start investing early, remain consistent and be patient in order to achieve our financial goals. It further dictates that an investment portfolio be well-constructed; it must have exposure to cash, bonds, property and equity (referred to as asset classes). The performance of each asset class will differ depending on the characteristics of the asset class and the phase of the economic cycle. Furthermore, selecting the right asset class for an individual is determined by various factors such as the investor’s risk profile, the desired return and how long his or she wishes to invest.
The one asset class many Millennials do not consider investing in is equities, due to a number of misconceptions, myths and unfounded stories around them.

Equity is defined as the value of shares issued by a company (either listed on the stock exchange or not). Equities can be acquired through various ways for example, via a unit trust with a registered asset management company, through online platforms such as Easy Equities or via Stock brokers. One of the easiest ways to acquire shares is via an Equity Fund unit trust where you have the opportunity to invest in securities, non-equity and participatory interest of collective investment schemes.

An Equity Fund unit trust provides the investor with a well-diversified portfolio that aims to provide capital growth over the longer term. It is important to mention is that the performance of Equity Fund unit trust can be affected by different risk such as unfavorable market movements, economic and political issues that can affect your capital. It is therefore important for an investor to speak to a financial advisor to understand the risk/return tradeoff and to know their risk profile before opting for an Equity Fund. An investor can start an Equity Fund unit trust from M15 000.00 initial investment and have the option to make monthly contributions starting from M1,000.00. The investor also has the flexibility to access the funds within 2 working days depending on the Asset Management company. Furthermore, investing in a unit trust provides you access to a team of experts and analysts to help with manage your portfolio. The challenge however, is that many millennials are not considering Equity Funds as an investment option despite the benefits of such a fund. So why should you as millennial consider investing in equities as an asset class?

Wealth creation
Investing in equities gives you the opportunity to achieve capital growth when the price of shares increases, while also generating income when dividends are declared. This can be achieved in the longer term and requires that you at least invest for 10-15 years. It is however, important to know and understand how equities work, the advantages and disadvantages of investing in them. Equities for example are known to be very volatile in the short term, where there is the risk of capital erosion. This was evident in 2018, where Equities generally performed poorly.

Beating inflation
There is nothing more depressing than seeing the purchasing power of your money eroded with time. Investing in equities will help you beat inflation so that you can afford the things you’ve become accustomed to. Speak to your financial advisor and discuss available options suitable to your specific needs.

Retirement planning
Many millennials often think that they still have a lot of time before they retire and as a result postpone the decision to start investing till they are older. The reality however, is that savings for retirement are often not enough and if left too late; the consequences are severe. Investing in equities (especially when we are still young) ensures capital growth in the long term and helps you accumulate substantial savings for retirement. So if you still young, with many years till your retirement and are looking to build wealth; consider investing in an Equity Fund. Equity funds are available from legally registered asset management companies. Speak to your financial advisor today to discuss options and investment strategies that will help you achieve your financial goals.

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