How do you know if the investment has any value?
The value of your investment is determined by the value of the underlying assets in your investment and the asset price change or if you buy or sell off units during the period of the investment.
Your investment value can change depending on the underlying assets in the investment
When the price of the units you own changes, this can affect your investment in a positive or a negative way. However the scenario that you are optimistic for is for your unit trust to earn returns through capital growth, which will then effect the value of your investment in a positive way. If the underlying assets are volatile, then the price of the units can fluctuate during the investment period. The most important thing to keep in mind is as long as you don’t sell your units off when the markets have dropped, you have not made a loss on your investment.
How do you calculate your investment value?
Calculating your investment value when buying units
The value of your investment is calculated on the amount of capital you want to invest and the price of the specific units at that given time.
For example, if you had R100 and the units cost R10 per unit, you will be able to purchase 10 units, however if the price of the unit dropped to R5 per unit, you will be able to buy 20 units.
Calculating the investment value with an ongoing investment
To determine the value of your investment on an ongoing basis, once you have purchased units, all depends on the value of the underlying assets of the investment at any given time.
So if we use the above example of R100 that has bought you 10 units at R10 per unit, if the price of the units dropped from R10 per unit to R9 per unit, the value of your investment will change, as your 10 units are now only worth R90 and no longer worth R100.
This is where most people panic and try and sell off their units as fast as possible to try and elevate any additional losses that could arise. However keep in mind that even though your 10 units are only worth R900 now, you still have 10 units and just as fast as the unit priced dropped it can also rise. So the unit price can go from R9 per unit to R12 per unit, pushing the value of your investment from R90 to R120.
So the way you calculate your investment value is by taking the number of units you have and multiply that by each unit price.
The other thing that can also affect the unit price is buying more units or selling off units at any given time during the investment.
All Video Clips and pictures supplied by Allan Gray
September 1, 2014
Grant van Zyl