Explaining the simplest, safest form of investment

September 14, 2016

It’s important for us to consider our finances and our future. Today, financial insecurity is worse than it’s ever been, with jobs quickly being lost to sudden shifts and changes no one sees coming. Even in some of the most prosperous countries, people find themselves out of work: Whether it’s something as dramatic as unemployment from “Brexit” or law changes, we never know what might happen leaving us without regular income.

It’s important then that we consider right now the actions we can take to secure our future. One key way is to focus on investment, letting money work for us instead of the other way around.

What is investment?

Everyone’s heard the word and most of us know those who do well in investment tend to be the richest people. But what precisely is it? The term itself is broad but the main definition concerns putting capital or money into a particular area and getting something out. We often consider people, ventures, education and so on all investments, since we give toward their growth. Education, for example, means we put in a certain amount to become more skilled and knowledgeable – ideally, we are thus able to make more and get a return on the initial investment.

In terms of working the market, however, we have stocks, bonds, mutual funds and real estate. These are called “investment vehicles”, which are basically ways to invest. As Investopedia notes:

“Each of these vehicles has positives and negatives… The point is that it doesn’t matter which method you choose for investing your money, the goal is always to put your money to work so it earns you an additional profit. Even though this is a simple idea, it’s the most important concept for you to understand.”

For our purposes, let’s examine one of the most common and regarded by many as the safest way to invest.

Unit Trust Investments

Put simply, a unit trust investment is when your and other investors’ money is pooled and used to invest in various financial instruments, such as equities (shares) and bonds. They’re cost-effective and offer capital growth, over medium to long term. Aside from the safety, there’s also the addition of expertise from many investment companies in South Africa. As News24 points out:

“Investing in a unit trust allows the individual and a legal entity (investors other than individuals) to invest in a variety of asset classes using the professional skill of a unit trust company (i.e. fund manager) at reasonable contribution amounts.”

This means we’re not going in blind, but guided by those who are more knowledgeable. There are all sorts of unit trusts to invest in, too. Two important aspects to unit trusts and investing in particular must be acknowledged.

First, investment is not savings. A savings account is money stored for a rainy day, not money being used to obtain greater returns. Second, investing is not gambling. Investing requires time, thought and study. It’s not based purely on luck. Pulling a lever at a slot machine is not the same as taking a chance on a tip from a friend we trust.

It is this preparation which can lead to investment success. We must begin speaking to experts and doing as much reading as soon as possible, if we hope to reap the best rewards from investment.  

(Image credit: NY Photographic)

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