A savings conscious Fin24 user is anxious about investing for his retirement and ensuring that his family is always provided for. He writes:
I am 28 and my wife is 26. Between us, we are saving R12k per month. We currently have R600k in savings and intend adding the R12k we manage to save every month to this.
Of the R600k, R200k is invested in equities offshore (in the US), R200k in local equities and R200k in cash. The R400k invested in equities is currently growing at an average rate of 15% to 20% per annum. The cash is growing at a nominal rate.
We have no children yet and no bond, nor do we have any debt or liabilities.
I am very anxious about being able to retire comfortably and ensuring that my family is always provided for. We don’t know whether we will stay in SA long term so there is no immediate plan to buy a house.
At the moment we have no kids but would hope to grow our family in the coming years. We’d ideally love to have three children, but this would be subject to affordability (it sounds terrible I know, but sadly the cost of children must be considered).
What is the best way to invest our current (and future savings) to make sure we are able to sufficiently provide for our future and our children future?
Vivian Govender, a financial planning analyst for senior market advice at Sanlam, responds:
To establish how to invest your money, you must first identify the purpose of the money and your investment personality.
Risk profiling is the process of establishing the type of investor that you are (your investment personality). Your personality can range from conservative through to aggressive and this will give a guideline as to how your portfolio should be structured.
By spreading your money across asset classes, within asset classes, across countries and across companies, you are able to achieve the highest possible return for the risk that you are willing to accept. This is known as diversification and is an important part of the investment process.
The purpose of the money will give you an indication of the risk you are willing to accept. For example, if you are expecting to buy a property within the next six months, you would require easy access and low to zero volatility in the investment.
If however the funds are to be used to supplement your retirement, you are able to accept a lot more volatility in the hope of achieving returns in excess of inflation. Your investment term in this case will be a lot higher, which will allow fluctuations to average out over time.
It was mentioned that you are uncertain whether you will reside in South Africa permanently. If possible establish a timeframe within which you will make this decision.
Rentals increase every year, which means that this cost will be continuously rising. Property prices may also rise during this period, making the cost of buying at a later stage a lot higher.
You are aware of the high costs involved in maintaining children. Some of the expenses you will have to consider are day care, medical expenses, education, clothing, nappies, time away from work and the list goes on. Take note of the costs involved and plan accordingly.
Your current portfolio is weighted heavily in three areas: offshore, local equities and cash.
Consider diversifying further to ensure that you are not over-exposed to certain markets.
You have not indicated whether the monthly saving of R12 000 per month includes saving towards a pension fund or any other retirement vehicle. These vehicles could provide certain tax advantages as well as giving you a clear idea of the capital that is to be used for retirement purposes.
Always take note of the fees that are being levied on your investments. Exorbitant fees will eat into your investment returns.
I strongly advise you to consult a reputable investment adviser who can give guidance in planning for your future.
Do you have a pressing financial question? Post it on our Money Clinic section and we will get an expert to answer your query.
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