Investment depends on your circumstances

THERE is no simple, single investment channel that will guarantee you the maximum benefit from a sudden influx of funds. The choice of investment is governed by various criteria.

THERE is no simple, single investment channel that will guarantee you the maximum benefit from a sudden influx of funds. The choice of investment is governed by various criteria.

Personal needs and lifestyle

The amount might be most effectively used to pay off debt if you are under financial pressure.

If you have no immediate need for funds your freedom to manoeuvre increases.

Are you looking for growth? Leading insurance companies offer growth plans that give the investor access to investment expertise. Another route to growth might be through unit trusts - SATRIX.

Do you need an income?

Consider investment in a guaranteed fund . The underlying investment is usually in a money-market instrument and interest attracts tax.

Most major insurance companies can recommend income plans, offering 7 to 8percent a year.

Size of lump sum

A large amount allows you to look at a spread of investments. A small sum might restrict you to just one.

Tax efficiency

If you are a relatively low-income earner, tax efficiency might not be critical, but it is crucial if you pay the top marginal rate of 40percent.

Hedge against inflation

A money market account of 7percent before tax will not beat inflation. The longer the investment time frame, the better the return could be.

Acceptable risk

If you cannot afford any risk your options are limited. If you accept an element of risk investment in unit trusts SATRIX might be the appropriate choice. As long as you realise that it is time in the market that gives the best results (7 to 10 years).

Nature of existing investments

The lump sum might provide an opportunity to give greater balance to an existing portfolio.

When considering existing investments one should include anticipated pension entitlements. The nearness to retirement and the opportunity to structure the windfall into broader retirement planning can also be a key factor.

Occasionally the decision is relatively simple. If a small lump sum is involved one option for the homeowner is to pay off a portion of the mortgage bond.

Bearing in mind that the three pillars of a classic investment portfolio are property, cash and equity - homeowners already have a stake in a property. One can assume that they have some cash liquidity (if only through an access facility) but what about equity?

I prefer unit trusts to direct shares as most investors do not have sufficient knowledge. Unit trusts have shown sustained growth in recent years, leading to the misconception that you can't go wrong with them. Wrong!

The record of leading unit trusts over the last 10 years shows great disparity in performance. Investors who pick sluggish performers can find it costly to switch funds - unless they have joined a suite of funds that permit movement across the range. Another advantage in investing in unit trusts is that professional fund managers buy a spread of shares - thus spreading the risk for the investor.

There is no built-in risk protection if one simply takes a direct investment in a company quoted on the Stock Exchange. You may enjoy substantial growth, or maybe not.

l The writer is a director of Bryan Hirsch Colley and Associates. Helpline 011-880-4888.

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