The credit crunch and turbulent financial markets have left ordinary investors even more distrustful of the industry than usual. Nine out of ten of the investors who responded to a recent MoneyWeek survey told us that they’ve taken more control of their financial affairs since 2008. And nearly half of them said that they have given up on financial planners entirely: They manage their portfolios alone.
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But if you are one of those who has decided to go it alone, you need to make sure you are doing so as cheaply as possible. Owing to the initial fees and annual management charges you pay on unit trusts, plus the trading fees you pay with shares and investment trusts and, of course, the taxes you pay on almost everything, investing can be an expensive business. And that’s before a financial planner skims off some more of your hard-earned cash. However, with a little planning, you can go some way towards cutting costs and maximising your profits.
If you’re going to manage your own money you need to be aware of how much you’re investing. It’s not a good idea to invest anything less than R10,000 in equities because of the high fixed costs associated with transactions. If you do want equity exposure, a buy and hold strategy might serve you best. It’s also worth checking out Standard Bank’s autoshare invest programme. You can invest as little as R500 a month and brokerage costs are much lower – around R25 including all fees. If you’d like more information check out www.standardbank.co.za.
When it comes to picking your funds keep close eye on costs as you do on performance. Initial charges can be as much as 5%. Annual fees, which can run to 2% on some funds, whittle away at your returns too. Invest R10,000 in a fund that grows at 7% a year with no charges and you’ll have R14,000 in five years. Pay 2% a year and you’ll only have R12,667. It might be an idea to buy and sell your funds through fund platform like Equinox. These platforms tend to cut initial charges and offer discounts on the annual charges of most funds too.
Another way to cut fees is to avoid actively managed funds and opt for index trackers or exchange traded funds (ETFs) instead. These funds don’t have to fork out for overpaid fund managers and research teams, so they can charge much lower rates – annual charges on the cheaper funds can come in at as little as 0.3%.
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