Investment options for a young family

2012-08-03 10:11

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.

 - Fin24

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  • anton.cameron.muller - 2012-08-03 13:21

    1) Pay off debt 2) R1,000 p/m to an RA - based on what? Why not nothing or R5000? 3) Agree - go see someone who knows what they are doing...

      Trent Hodges - 2012-08-03 14:52

      My thoughts exactly?

  • blatherwick.ashburner - 2012-08-03 13:46

    Invest directly in the market through Satrix - fees are low and the indexes are tracked. The dividend ETF does very well with a lower risk of capital loss. Timelines need to be longer than three years.

      lee.vanrensburg.9 - 2012-08-03 14:50

      Yes and no - lacks diversification for most

  • piet.strydom - 2012-08-03 14:05

    The best thing you can invest in is increasing your knowledge about financial investing and retirement planning. Claims that it is difficult is only made by financial advisers to drum up business for themselves. Anybody with a reasonable amount of intelligence and a reasonable amount of education can do so. You are still young enough to learn from your inevitable mistakes, and recover from them. Otherwise you will just pay for your financial adviser to learn from his mistakes. Just think where the worlds current financial problems come from? - From the "professionals" that got it wrong.

      piet.strydom - 2012-08-03 16:14

      ?? I am saying open your eyes and learn, not put your head in the sand and trust other people to look after you?

  • Taso Holman - 2012-08-03 14:55

    Well said Mr Strydom.....

  • palu.jon - 2012-08-03 15:10

    my question would be, if you have R800 000 in cash, why did you withdraw from the preservation fund and pay all that tax???? secondly, what are the fees being charged, upfront and ongoing? if you are not working, then contributing to an RA makes no sense as you are not paying any tax and your funds are locked away until age 55!!! Settle all debt first. and then take it from there. try and go the direct route(DIY) and save yourself THOUSANDS in FEES and COMMISSIONS!!!

  • - 2012-08-08 06:54

    This is typical financial planner advice which, as usual, is weighted towards investments that will line their own pockets. 35 years ago we were promised these 10%+ returns from the "life" companies. 10 years ago we cashed them all in as actual returns were well below inflation (3% pa). Consult a property auditor or property asset manager who can show you 20 year historical returns to justify future return estimates. With R 800k, you can start off with around 10 entry level townhouse investments and by age 65 you will probably have around 30 townhouses fully paid off (if you so prefer). In TODAY'S money, that is around R96k pm net operating income. If structured and managed correctly, you will be paying around 4% to 8% tax on this. Find yourself a reputable PROPERTY WISE auditor and secure your own future.

      lee.vanrensburg.9 - 2012-08-24 11:39

      Well, there is your first problem. Life companies.... need i say more

  • panafriconman - 2012-08-08 19:52

    You'd have to be crazy to put more than 30% of your investment into property - 2012-08-10 08:38

      You would be crazy not to: - Long term returns surpass other asset classes by a humongous margin; - Unique leveraging capacity; - Refinancing strategies provide ongoing TAX FREE income; - Well-managed property portfolios always have sufficient liquidity; - Trust structures enable legacies for generations to benefit from. I can go on and on here...again I say, consult a property professional (definitely not a financial planner) to establish for yourself the true benefit of property over other asset classes.

      lee.vanrensburg.9 - 2012-08-24 11:44

      Comm.propertysa - go look at the 10 year returns on the Investec Opportunity Fund. Or the Allan Gray Balanced Fund.... easy to get into, liquid, and medium risk, low costs. Also, there is the option to invest without any broker comm if you know what you are doing. Would one really want property in a country who's government admires Zimbabwe and with malema looming in the darkness?? I think not.

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