Is investing in the money market worth it?:
If you consider yourself a long-term investor(investing), you should consider some form of capital appreciation when evaluating your investments over time. You would expect that the impact of rising inflation would not affect the purchasing power of your wealth. If you have invested in currency and currency market solutions, you can be confident that your assets are not exposed to unpredictable risks, that you do not have to follow the markets, and perhaps even better. inflation works at an adequate level. With current interest rates, this could not be further from the truth, and looking at the returns on your money market account may leave you unpleasantly surprised.
Cash investing have become a risk:
We recently saw that the CPI (which only measures the price of limited goods and services) increased by 14.4% in 14 months, driven by higher fuel and transportation prices. If you look at inflation in general, you agree that inflation should be expressed as a much larger percentage, probably more than 10%. Due to the infamous financial crisis caused by COVID-19 and its aftermath, the Reserve Bank has lowered interest rates to alleviate indebted families and businesses. The interest rate cut was intended to discourage savings and increase spending, to stimulate the economy in response to the pandemic. As a result, money market investments have not yielded the same returns in the past. If most of your assets are invested in money market instruments, you run the risk of weakening your capital in the current low-interest-rate environment. Despite rising inflation, interest rates are likely to remain low for some time to come, and certainly for the next 12-18 months.
Where a money market account(investing) is suitable:
• Money market and financial investments are usually used for short-term purposes, such as paying for a portion of a property. The nature of cash investments is that capital is generally safe and somewhat safe when access to funds is required.
• In a structured portfolio, money is also used for capital preservation. However, if you are a long-term investor looking for capital appreciation and returns that beat inflation, this may be a good time to rethink the allocation of liquidity in your portfolio or look for alternative investment solutions if all your assets are in cash. be invested. . investments.
Money market alternatives: types of mutual funds and exchange-traded funds.
Income funds – Usually a unit trust fund or exchange-traded fund, managed conservatively and used as a capital preservation strategy in a diversified portfolio. Risk-adjusted bonds offer attractive returns and can be used to increase the returns of these types of funds.
Balanced funds – Usually a unit trust fund or exchange-traded fund that is managed in a balanced way and usually includes different asset classes such as cash, bonds, and equities.
3. Local equities:
both can be held directly, for example in a direct equity portfolio, or through an equity fund and ETF structure. The shares are suitable for an aggressive investor with a risk profile.
4. Foreign equities –
Invest directly abroad in a direct equity portfolio, mutual fund, or ETF. The portfolio can be held in foreign currency or in ZAR through an asset exchange service. Foreign investments are inherently volatile and suitable for an investor with a long investment horizon and high-risk tolerance.
Carefully selected portfolios are part of a solid financial plan. To increase the likelihood of returns above inflation, additional calculated risks must be taken within the portfolios, including the decision to maintain liquidity segments, which can best be addressed under the guidance of a financial adviser. A study by the international company Vanguard found that using a professional guide over time was beneficial.