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A Fin24 reader writes:
I am 65 and have R150 000 to invest. Should I invest R50 000
each in three different balanced funds - ie Allan Gray, Coronation and Old
Mutual? Or should I rather invest the total amount in one fund?
Almo Lubowski, a certified financial planner, responds:
I will try and stick to the funds you suggested yourself, as
the first two are good balanced funds that have been quite consistent over time.
The Coronation Balance Plus is currently first over a five-year period in its
class.
The Allan Gray Balanced is also one that has given quite
consistent returns in its class. I will also assume you have at least five
years available in which you will not necessarily require this amount of money.
The whole point of a balanced fund is that it already
diversifies across asset classes, so using more than one balanced fund makes
little sense unless you want to spread your asset manager risk in terms of stock
picking and weighting of investments. I would therefore only spread it across
two funds at the most.
If you want to invest in both funds, then practically a
linked investment platform (LISP) is the way to go, but the costs are more if
you use other asset managers. So if you use the Allan Gray LISP and split the
investment between its own balanced fund and the Coronation Balanced Plus,
there would be a higher cost implication in respect of the Coronation fund.
However, Coronation funds have good rates on other LISPs and
the cost is not extremely high compared to investing into some other asset
managers through the same LISP.
If costs are a concern - which they should be - and
considering the amount not being extremely high, I would suggest you choose one
of the funds and invest directly into the unit trust and not necessarily
through the LISP, unless you want flexibility of choice with low or no
switching costs at a later stage.
Another consideration is an indexed fund, also known as an exchange-traded fund (ETF), such as the Proptrax 10.
Although this fund invests only in the top 10 listed
property shares on the JSE, these shares arguably have less risk in that the
income of these companies is based on rental income from their properties.
Commercial property has also had good returns in the recent past.
- Fin24
- Lubowski heads up the technical department at the
Financial Planning Institute (FPI), but is answering these questions in his
personal capacity and not as an FPI employee. Where appropriate, the
information does not constitute financial advice.
Before making any decisions based on the contents of this communication, the reader is urged to consult a licensed financial adviser.
