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Stocks vs retirement fund

A Fin24 reader asks:

I have about R500.00 a month and I am currently 29 years old. Is it better to take out a retirement fund or is it wiser to buy stocks?

Laurie Buxton of Plexus Asset Management responds:

You are only 29 years old with a long time to go before retirement. If your investment objective is for retirement planning, the time horizon for your investment is long term.

We would recommend a portfolio that is fully invested in equities (stocks) because they have the potential to provideinflation-beating returns over the long term.

With an investment amount of R500 a month, you should consider unit trusts as an investment option. (Unit Trusts  are organisations that take money from small investors and invest it in stocks and shares for them under a trust deed, the investment being in the form of shares (or units) in the trust.)

You could combine a domestic general stocks fund with foreign stock fund. Choose stocks with long-term track records.

You can also invest the monthly amount in unit trusts via a retirement annuity with a linked investment services provider.  In this option, the investment is subject to the legislation pertaining to retirement funds. Regulation 28 of the Pension Funds Act stipulates that the maximum exposure a retirement fund may have in equities is 75%.

In addition, with a retirement annuity you will only be able to access your funds at age 55 earliest and you may only withdraw one-third of the investment amount. The two thirds balance must be used to purchase an annuity to provide income for your retirement.

Before making any decisions based on the contents of this article, the reader is urged to consult a licensed financial adviser. 

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