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A Fin24 user writes:
I'd like to invest R550 000 for retirement purposes in six
years' time. What would you advise?
Almo Lubowski, a certified financial planner, responds:
As with any advice it is always important to have as many
facts as possible. The more detailed the facts, the better the advice can be.
It is also important to note that it is always a good idea
to build a personal relationship with a competent adviser who can follow you
through your financial lifetime.
You would want the adviser to be as professional as
possible. To date the only organisation in SA that you can be assured has
professional members is the Financial Planning Institute of Southern Africa
(FPI).
You can log on to the website (www.fpi.co.za) to find a
financial planner, and you can also narrow down your search to the type of
advice you are seeking and your area.
To try to answer your question, it is difficult to do so
without having a sense of your entire portfolio. Some of the questions I would
ask to get a better idea would be:
• Is this the only money you have for retirement purposes?
• What is your age?
• Where is the money coming from?
• What monthly/yearly amount would you need to draw once you
retire?
Once we have established some of this information, we can
then firstly consider the type of product or wrapper.
For the most part, before deciding on an asset class you
must first consider the "legal wrapping" which will be your
investment vehicle.
What distinguishes different wrappers is usually their tax
treatment and duration.
So in your instance, considering you are specifically saving
for retirement, a retirement annuity (RA) wrapper would most likely be the
option - but that is not necessarily a hard and fast rule.
Your RA contributions are usually tax deductible; they can
reduce your gross income and therefore bring down your taxable income.
Conditions are attached, but that is broadly the case. In terms of time you are
only able to access RA savings when you are 55, at the earliest. You will be
able to draw up to one-third in cash, of which R315 000 - less any previous
amounts drawn from retirement products - is tax free.
The remaining two-thirds or more will then be used to
purchase an annuity (a monthly payout). I will discuss this option only as it
is the most likely, considering you asked about retirement.
Your next decision will be your underlying investment
portfolios.
Here you will need to consider your risk profile and what
type of investor you are. The more aggressive you are, the more equities
(shares) you will hold.
Other asset classes are property, usually also property
companies on the stock exchange, bonds and cash.
With changes in legislation, RA funds will also be subject
to limits for different asset classes. This is set out in the new Regulation 28
in terms of the Pensions Fund Act.
It is also important to consider your time horizon, or the
time you have to invest.
You said you have six years, so consider holding a large degree of equities in your portfolio, as you have the time.
Although equities can be volatile over longer periods, they
still have better growth compared to other asset classes.
As you can see, there is much to consider. As mentioned
earlier, it is best to have as many facts as possible at hand and, secondly,
get assistance from a professional.
However, consulting a professional does not mean you must
not do your own research. With most things in life, I always find it best to do
my own checking and then have good questions to ask the relevant professional.
- Fin24
• Lubowski heads up the technical department at the 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. While every attempt has been made to ensure accuracy, the writer cannot be held responsible for any errors that may occur.
Before making any decisions based on the contents of this communication, the reader is urged to consult a licensed financial adviser.
