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How to avoid risking your retirement savings
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By Leslie Greyling*
How confident are you that, when the time comes, you’ll be able to shut your office door for the last time and step into a life of comfortable retirement? The reality is that very few South Africans can say with full confidence that their future is well taken care of.
Sadly, being unprepared can cause some people to panic and put their money into a pyramid scheme or unregulated investments that promises great returns but ends up being yet another scam targeting the desperate.
Anyone who’s fallen foul of these scams can tell you how difficult it is to recover from a big financial setback late in your work life, especially in retirement.
All too often, at the exact time you should be dialling back your exposure to risk you’re suddenly going all in. And if that bet doesn’t pay off, you’re in an even worse position than before.
Know your exposure
Which is why it’s so important to understand what level of risk you are willing to accept and can afford to take at different life stages.
Typically, younger investors can adopt a more aggressive stance as they have a longer timeline to recover from market fluctuations. They also have the benefit of long-term exposure to growth assets.
An example of a portfolio construction for someone in this position would be to hold 50% – 70% in high-risk, high-return investments, 30% – 40% in medium risk assets and 0% – 10% in low-risk instruments. This portfolio could include unit trusts with a high exposure to local and offshore equities and a smaller allocation in balanced/moderate portfolios.
Direct offshore investments offer currency and asset class diversification with higher risk-growth potential, but the investor must be prepared to accept the volatility in the short term.
Someone with a more moderate risk profile should be prepared to take a small to medium degree of risk, although this profile person is relatively concerned with potential possible losses than possible gains. Funds to consider include the Brenthurst Global Balanced Fund and the Brenthurst Global Equity Fund.
The balance of a medium-risk portfolio could be 30% in high-risk, high-return investments, 40% in medium risk assets and 30% on low-risk, low-return investments. You can achieve this using unit trusts made up of some income and balanced funds, but also exposure equity funds to offer higher growth potential. Funds to consider include the Brenthurst BCI Balanced Fund of Funds and Worldwide Flexible Fund of Funds.
The last classification of investor is the low-risk group that is mostly concerned with possible losses rather than possible gains in an investment. They are conservative in their investment approach and prefer minimum risk in the underlying assets.
For this group ideally, an investment portfolio should be as follows:
50%-60% % in low-risk funds, 30-40% medium-risk funds and 10% in high-risk funds (aggressive) funds. This construction will have the least volatility, especially and aimed at capital preservation. A low-risk investment could include fixed return and guaranteed products, unit trust investments that hold mostly SA bonds and income funds, as well as balanced or conservative funds. A fund to consider would be the Brenthurst BCI Cautious Fund of Funds.
You must be realistic and manage your expectations.
In an ideal world, making and managing your investments using these guidelines should allow you to reach your investment goals.
It’s not a very complex or intricate path to follow but does ask you to commit to a plan to reach your target. Going on this journey with a trusted financial advisor who’s able to point you in the right direction can make all the difference in meeting your goals.
And if you do, you won’t have to rely on the promise of quick riches offered by the multitude of scammers waiting to relieve you of your retirement savings. The truth is that even if you do find yourself short, you probably have more options than you realise.
The most important question to ask yourself is whether you will be as happy to see a decline of 20%-30% in your investment value, as you would be to see 20%-30% growth. Investors must be prepared for the volatility of the markets and stay calm through turbulent times.
A steadier, considered path will see them secure their retirement rather than betting their future on get-rich-quick scams.
Read more about investment planning.
- Leslie Greyling is a financial advisor at Brenthurst Fourways. [email protected]
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