Investment vehicles determine your success, so choose well
Ever considered investing in unit trusts? Or, do you prefer savings accounts? Investing, in itself, is an adorable catchphrase for those who don’t practice it. However, it is the lifeblood of those who do.
It is true that everyone desires to invest more than they spend. It is also true that spending your earnings is way sweeter than investing them. In the short term. But the fact that more people dream of investing shows they realize its significance, and that they would love to reap its benefits down the line.
This article is meant to remind you this: you can still invest your earnings if you start today.
In light of this, we are discussing the best choice of investment vehicles between two options:
Unit Trusts v Savings Accounts
We all desire to save and/or invest at some point in our lives but we fail to accumulate the little extra we have or we lack adequate financial know how to do so. Obviously, we are more likely to save if we have an investment goal and that’s why I think Unit trusts are a much better deal compared to saving accounts in banks.
Unit trusts are professionally managed collective investment schemes where investors pool their money. The accumulated funds are then invested in a portfolio of assets (stocks, bonds, bills, etc.) and the individual investors gain in proportion of their investment if the value of the underlying assets increases.
Some of the common unit trusts include money market funds. These firms invest in short term securities like Treasury bills, Equity funds that invest in a variety of stocks, Bond funds for bonds and finally balanced funds that combines all these asset classes.
The money market funds are considered low-risk and tend to have lower minimum balances. The others are mainly long term investment options. Gains from Unit Trusts range from about 8% to 16% p.a. based on the level of risk. In comparison, Commercial banks offer about 4% p.a. and only fixed deposit accounts compete favorably, with some over 10%.
You should probably choose unit trusts over savings accounts because the former offers better rates of return. Also, if you wish to invest in the securities market, but want to avoid the risk of investing in one company then you may consider Unit trusts as a safer and more stable option. Unit trusts also enable one to invest in a variety of securities at once and get periodic interest unlike some banks that only award interest at year-end.
Investment banks are specialized unlike most commercial banks and you are more likely to easily access financial information and advice as well as brokerage services from the former. The regular Capital Markets Authority open day expos in Nairobi showcases a variety of firms that offer their customers the option to invest in Unit Trusts. They Include O Unit Trusts better than Savings Accounts
Old Mutual, Genghis Capital, Stanbic Investments, Dyer and Blair investment bank, Britam, Apex Capital, Apollo, and CIC. The minimum account balances are as low as KES 500 at Genghis Capital and Kshs. 100,000 (~$1,200) for some of the other firms, especially when working with foreign investment companies.
Most firms give a capital guarantee, meaning that the principal you put in is secure, but it is always safe to check. Management fees and initial fees also vary depending on the type of fund, and while some companies charge is based on the interest earned, others may charge it on the principal amount.
Some firms also allow you to access your money upon request via M-Pesa while others require you to wait for 3 business days for payments to clear. In comparison, money in a savings account is only an ATM visit away so chances of misspending are high.
It is imperative that you consider your choice of an investment vehicle to be as important as the decision to invest is. In fact, given that some investment modules bear more risk of loss than others, it could be argued that how and where you invest matters just as much as whether or not you take that leap.
At the end of it all, however, investing in financial markets is a highly rewarding undertaking. It is also more likely to grow your wealth faster than most forms of investments out there.
Ultimately, however, whether you lean towards a unit trust or a savings account depends on own financial objectives. Your level of risk tolerance must also be considered. The biggest takeaway, however is that a unit trust will grow your funds faster that a savings account will.
I know what I’l choose.