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Balancing your portfolio’s risk and return with unit trust (Advertorial)

Published:Thursday | August 23, 2018 | 12:00 AM

The financial sector is seeing a shift away from repurchase (repo) agreements, and the corresponding increased popularity of collective investment schemes (CIS), in addition to the decline in interest rates on savings accounts.

Against this background if, as an investor, you are interested in potentially higher returns, you may need to consider investing in other investment instruments, such as CIS - which includes both unit trusts and mutual funds.

Most, if not all, investors would love to benefit from investments with zero risk that guarantee their principal and they can cash out at any time, without penalties, and of course, get great returns. 

However, the ‘unfortunate truth’ and the golden opportunity, is that investing requires you to balance your risk and rewards.

Balancing Risk and Return

The common rule of thumb in investing is that, the higher the risk, the greater potential there is for higher return/rewards (also losses).

JMMB Fund Managers (JMMBFM) CEO, Christopher Walker, in touting the benefits of CIS, notes that they generally provide above average returns, when compared to repos and savings accounts; while balancing the need for diversification.

Additionally, you can still have relatively easy access to your funds, dependent on the nature of fund. 

Walker shares how investors can balance their risk and return by investing in CIS, specifically unit trusts, thereby enjoying the best of both worlds.

Here are some guidelines for investing in unit trusts, while striking that balance between risk and return:


• Determine your risk appetite and goal:

It is important for you to examine your risk appetite – whether you are conservative, moderate or aggressive. Additionally, determine your investment goal – i.e. is this goal short-term, medium-term or long-term.

Why is this important? As you determine your risk appetite and investment goal, your financial adviser/partner will be better able to align these with the most suitable unit trust solution. 

There are over fifty unit trusts available from local financial institutions. By reviewing a fund’s offering circular or a written disclosure document, you can determine which unit trust fund is best for you, based on your personal risk and investment goal(s).

The diagram above provides an illustration of JMMB Funds’ unit trust solutions, based on the risk, return and the investment horizon.


• Utilise expert management:

In order to benefit from superior returns, a sophisticated understanding of market conditions, and dedication to the process of selecting the right mix of assets, would normally be required.

If, however, you have neither the time nor the expertise, unit trusts are managed by experts, who are responsible for the funds’ investment strategy and make long-term decisions in keeping with stated protocols, and the funds’ investment policy guidelines.

This helps you to save the time and effort required for the daily monitoring and management of your portfolio, while still benefiting from superior returns. A management fee is generally charged for this added value.


•  Diversify your portfolio:

The adage, 'don’t put all your eggs in one basket,' rings true when investing in unit trusts and serves as a good way of achieving diversification in your portfolio.

This allows you to limit any fall-off in performance of a particular asset, as your investment is allocated across several different asset classes. Unit trusts are especially designed to have a mix of varying assets, usually across several asset categories, sectors and investment time lines.

Of course you can also bolster your current portfolio with various unit trust products that have a wide range of assets, not already in your portfolio, such as real estate, stocks or bonds.

Additionally, JMMB offers several managed investment solutions, tailored towards specific individual goals, such as the JMMB Graduate and JMMB Wealth Builder, designed to help you achieve your goals of education and wealth accumulation, respectively.


•  Start small:

For investors looking to ‘test the waters’ or begin building out their portfolio with limited funds, unit trust provides the most cost-efficient way and offers lower risk, if you wish to venture into this type of investing. 

The required initial investment is usually small and can range from J$3,500 or US$55 upwards.  You must bear in mind that unit prices move, as the value of the fund changes over time, based on its performance. Although the amount you invest may be limited, your rate of return is not dependent on your principal, unlike some investments, therefore all investors - big or small - earn the same rate of return. 

Walker underscores that as with all investments, unit trusts carry some level of risk, which is generally based on the type of fund.  He noted however, that comparatively, these funds offer you the best chance to stay ahead of inflation, minimise your risk when investing and to maintain easy access to cash, should the need arise. 

As investors, you are encouraged to speak with your investment adviser to customise your investment portfolio, and determine if including unit trust will assist you to better balance your risk and return dynamic.

To begin building out your portfolio with unit trust contact JMMB today at (876) 998-5662 or text “UNIT TRUST” to 822 -5662 (JMMB).

- Advertorial