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01 Dec 2011

Christmas Bonus - Don't Blow It, Grow It!

Many people who are lucky enough to receive a 13th cheque at the end of the year will start to think about spending it on luxury items, splurging on those things that are normally unaffordable.  For others, this end-of-year windfall offers an opportunity to tackle things put off for months due to a lack of funds – whether it is household maintenance, replacing old appliances or repairing a vehicle.

Some savvy folks, having learnt hard lessons through the recession, might put this money into their bond or credit card to reduce the amount of interest they pay. However – Paul Cluer, Managing Director of Foord Unit Trusts, says that the best thing to do with your Christmas bonus is to invest it and ultimately grow it.

“Many people may feel that it is not worth investing their bonus given its relatively small size. But it will surprise you how quickly a small amount will grow over the years and if you make a concerted effort to invest your bonus every year then by the time you retire you will have contributed substantially to your retirement funds.”

*For example, if you received a R20 000 bonus cheque and invested it into a Foord equity portfolio as a once off lump sum, over a period of five years ended 30 November 2011, your investment would have grown to approximately R34,000 at a return of 10.6% per annum after fees. The modest annualised return is a direct result of the effect on share markets of the Global Financial Crisis, which arose in 2008.

Over ten years, it would have grown to around R129,000 by 30 November 2011 at an average annual rate of 21.3%.This return includes the effects of the financial crisis on share markets but also encompasses the strong bull market which ended in 2008. Were you to have invested your R20,000 bonus every year into this portfolio, by 30 November 2011 you would have amassed a total investment of R602,000!

“R20 000 does not go very far any more these days,” says Cluer. “But invest such a lump sum in a savvy manner and that money is around indefinitely – and available for compound growth over the long-term.”

“A bonus, or 13th cheque, is a reward for a year of hard work. By blowing it on luxuries and frivolities you treat yourself in the short term but ultimately prejudice your long-term savings goals. Invest your bonus and watch it grow, secure in the knowledge that you are adding to a comfortable retirement, or better yet, allowing yourself to retire early – now THAT is a luxury worth having!”

Foord Unit Trusts offers a focused range of long-term savings portfolios. The Foord Equity Fund is for long-term investors who can withstand volatility in the short-to medium-term, the Foord Balanced Fund is ideal for investments via retirement Products, the Foord Flexible Fund diversifies exposures on a global level according to Foord’s best investment view and the Foord International Feeder Fund offers investors a balanced exposure of international assets. All portfolios permit investments with lump sums from R20 000.

*Note: The calculations in this article assume an investment in to the Foord Equity Fund Unit Trust from 1 September 2002. Performance figures that precede this date are extracted from the equity carve out returns of the Foord Global Balanced returns composite.


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