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Cape Town – The needs, spending habits and lifestyle of a 22-year old are vastly different from that of a 42-year old – a fact that Ecsponent Financial Services (FSP 32968) is ever cognisant of when matching investment strategy to the stage an investor has reached in their life.
Life stages of investment
Floris Slabbert, national sales manager at Ecsponent Financial Services, says the investor life cycle can roughly be divided into four stages, including accumulation, consolidation, spending and gifting.
“Young people who have just started their careers have a long time to retirement and may feel more comfortable taking on a riskier, or more volatile, investment because they can wait out slow economic cycles and the inevitable ups and downs of markets with higher expected returns in the long run. Investments like this would include a heavy equity weighting as equities outperform in the long term.”
For this reason Ecsponent advises younger investors to start with a comparatively high-risk, high-return equity strategy and gradually move to low-risk, low-return fixed income- or retail bonds strategy when approaching retirement as they progress along the in the investment lifecycle.
As people grow older and settle down to start a family, they are focussed on repaying bonds, paying for education, etc., while consolidating their portfolio or embarking on lower risk investments for their children’s education.
Ecsponent’s Slabbert gives an example of life cycle investment: “Take for instance a 33 year-old male in the accumulation phase. His portfolio must be adjusted and diversified across investments with different risk profiles and in terms of the allocation of equities versus fixed income.”
“In addition, a dividend investing focus will help with the inflation protection requirements in the accumulation phase. As inflation rises, so will his dividend payments, which should be reinvested to generate capital growth, thereby shielding him from the negative effects of inflation.”
Slabbert continues, “As time to retirement shrinks, investors need a more diversified risk portfolio to ensure preservation of what they have accumulated. Index-linked bonds are particularly safe as they preserve wealth even against inflation. Living annuities are also a very safe investment as they guarantee an income for life.”
The final two stages are spending and gifting, a time when investment through the life stages is supposed to pay off to ensure investors can maintain (and share) their retirement income with certainty against inflation.
“When it comes to combatting inflation in order to maintain living standards, ordinary investors will need a return of at least 9% to 12% per annum to counter the effect of inflation. These yields will be more easily achievable through the rising interest rates,” says Slabbert.
Ecsponent expands its asset management stable
In order to enhance its current growth and dividend providers and investment offerings to better fit all the investor life stages, Ecsponent Limited acquired local asset manager, Clade Investment Management in the second half of 2015. Clade currently has six retail funds, all of which have been top performers in their categories since inception, as well as an extensive network of financial advisors. The asset manager is also the recipient of the Bond Exchange of South Africa Spire Award for Most Innovative Product.
The expansion drive is intended to substantially increase the retail and institutional client base and provide investors with access to high-quality, low cost solutions, backed by extremely high service levels.
Rebalancing in the face of inflation and rising interest rates
Following a second interest rate hike in six months in January of this year, consumers will have to deal with increased bond-, car- and other debt repayments, as well as the dramatic impact of the weakening rand and the countrywide drought on food prices. On the positive side, interest-linked investments will be positively affected as these are experiencing the best interest rates in five years and are likely to benefit again as more rate increases are expected.
“This is exactly the reason why during higher interest rate cycles, Ecsponent Financial Services advise investors to meet with their financial planner every few months to discuss their budget and financial affairs.
It will help you to prioritise spending during times when budgets are under pressure to ensure that your financial decisions today don’t affect your future financial health. The closer you get to your investment goal (e.g. retirement), the more likely it is that you’ll need to change your asset allocation.
“For a company like Ecsponent to ensure certainty in retirement, it’s essential to have an investment plan and revise it regularly to ensure you’re not overexposed in specific asset classes (locally or abroad),” he concludes.
