A Fin24 user writes:
My husband and I are 35 and 34 years of age respectively, with two children. I would like to know what investment options are available to me.
In 2007 after resigning from work, I transferred my pension fund to a preservation fund. In July 2012 I withdrew from this preservation fund.
In total we have in savings of about R800 000 in the bank.
We have an outstanding bond of R150 000 and two cars that we have recently purchased.
We recently invited an Old Mutual adviser home to discuss our financial needs.
He suggested the following :
1. I should increase my retirement annuity to R1 000 (I am currently paying R350). This is to offset the withdrawal from the preservation fund.
2. To start with, we should take half of our savings and invest in the Old Mutual Fairbairn balanced portfolio.
I was told I can expect returns of between 10-13%. This is tax free. If I am happy, I can put in the balance.
Please could you advise further on our financial needs? Can I expect such returns?
Don Richter, a financial planner at PSG Konsult, answers:
On the assumption that a proper needs analysis had been done by the adviser, we presuppose a "balanced growth" risk profile with a medium tolerance for capital loss.
The key aspect to consider would be the family's cash flow needs - ie do they need income to be generated from the capital amount to supplement living expenses?
If the answer is yes, we would advise that at least six to 10 months' worth of income needs be kept on call in a money market account. This will also serve as an emergency fund.
We would recommend diversifying the balance of the capital across a combination of a direct holding in blue chip growth shares on the JSE and a balanced unit trust portfolio consisting of reputable fund managers such as Allan Gray, Coronation, Foord, PSG and Prudential.
Funds to consider could be the Allan Gray Balanced, Coronation Balanced Plus, Foord Balanced, PSG Balanced and Prudential Balanced funds.
We would not recommend an investment into a retirement annuity unless the reader qualifies for a tax deduction against the contribution made.
With regards to expectations on performance, the old disclaimer of "historical performance is not indicative of future results" rings true, and because of this we would caution against high short-term expectations.
History teaches us how certain asset classes will likely perform under certain macroeconomic conditions. For this reason we can project that investments in shares alone will return around 12%, given the current rate of inflation.
We would also consider the reader's relatively young age when recommending a portfolio.
The reader is well-advised to approach an independent and CFP-qualified financial adviser to assist with her family's financial plan.
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