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Best way to beat inflation

A FIN24 reader asks:

I am over 66 years and I have R500 000 to invest somewhere. It is currently in a money market fund with one of South Africa's big four banks, where it is only earning 5.2% interest. I think this is very low. I do not think at my age I can afford to take any risks by putting this money into the stock market on a high risk fund with a high percentage allocated to equities and lose it all.

What would your advice be regarding this? Which is the better option on where to invest it to get a better rate of interest?

Don Richter, a financial planner at PSG Konsult, responds:

Even though it is comprehensible that you do not have the stomach to risk your capital depreciating at this stage of your life, you will unfortunately have to expose some of it to moderate risk in order to stand a chance at beating inflation.

Inflation destroys the value of your money incrementally on a daily basis without prominent alerts to the danger. 

You should seriously consider exposing at least 30% of your capital to blue chip growth equities. Unfortunately by not exposing at least 30% to 40% of your investment capital to blue chip shares, you have little chance of your capital outpacing the eroding effect of inflation.

If you are uncertain which shares to purchase, you should consider investing in Satrix 40 exchange-traded funds. I would encourage you to investigate how to do this by going to the website www.satrix.co.za

You should also consider investing a further 30% into government retail bonds. We would also recommend that you opt for a shorter term fixed rate retail bond, such as the 3-year savings bond which currently yields an attractive 7.5% interest a year.

You can learn more about SA Retail bonds by visiting their website www.rsaretailbonds.gov.za

 - Fin24

 
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