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A Fin24 user wants to know if she should move her funds as recommended by her bank. She writes:
I am 67 years old and have three years to retirement, and would like to ask a question.
I have R500 000 in a money market account getting 4.77% interest at present, but I also contribute a sum of money to this each month to make it grow faster.
I am saving up for a pension when I retire as I will not be getting any pension from a company, so this is my pension money.
I was advised by my bank that I should move this money out of the MM into a low/conservative fund to get it to grow better and faster.
The two funds they recommended were: Prudential Inflation Plus Fund and Absa Absolute Fund.
I am aware that inflation is eating away if one stays in cash, but at the same time I am very nervous of moving to other funds and taking any risks at my age with the world economy in turmoil.
What would your advice be to move into these two funds, or any other funds for that matter?
Vivian Govender, a financial planning analyst for senior market advice at Sanlam, responds:
A money market investment in essence is one in which you would keep emergency funds or money that will be used within the next 12 to 18 months.
It is a "safe" investment over the short term, but over the long term may prove to be riskier than other investments. The risk of a longer-term (five years and over) investment in a money market fund is that the buying power of your money will be eroded by inflation.
If the purpose of an investment is to provide a long-term stable income and growth, you must be invested in a well-diversified portfolio that will provide a return that beats inflation.
Such a portfolio will be structured in line with your investment profile, and your money will be spread across all asset classes.
Your entire investment will not be used at age 70.
It will have to provide you with an income for the next 20 years, which is why it is important that you invest your savings so that it can provide you with a stable income and maintain its buying power.
To achieve this, your savings should be invested in a well-diversified portfolio now and in retirement.
You may also consider investments that can provide you with a guaranteed income. Be sure to take note of the interest rate that you are locked into, as this rate will apply for the term of the investment.
There may however be more to the picture and a number of other factors that will influence your decision.
I advise you to consult a reputable investment adviser that will establish your investment personality, look at the bigger picture and advise you not only for the next three years, but also plan and guide you once you have retired.
Also discuss other savings vehicles with your adviser, such as retirement annuities that may provide certain tax advantages.
Be aware of all costs and taxes related to any investment, as this will have a negative impact on your investment return.
- Fin24
Do you have a pressing financial question? Post it on our Money Clinic section and we will get an expert to answer your query.
Disclaimer: Fin24 cannot be held liable for any investment decisions made based on the advice given by independent financial service providers.
Under the ECT Act and to the fullest extent possible under the applicable law, Fin24 disclaims all responsibility or liability for any damages whatsoever resulting from the use of this site in any manner.
I am 67 years old and have three years to retirement, and would like to ask a question.
I have R500 000 in a money market account getting 4.77% interest at present, but I also contribute a sum of money to this each month to make it grow faster.
I am saving up for a pension when I retire as I will not be getting any pension from a company, so this is my pension money.
I was advised by my bank that I should move this money out of the MM into a low/conservative fund to get it to grow better and faster.
The two funds they recommended were: Prudential Inflation Plus Fund and Absa Absolute Fund.
I am aware that inflation is eating away if one stays in cash, but at the same time I am very nervous of moving to other funds and taking any risks at my age with the world economy in turmoil.
What would your advice be to move into these two funds, or any other funds for that matter?
Vivian Govender, a financial planning analyst for senior market advice at Sanlam, responds:
A money market investment in essence is one in which you would keep emergency funds or money that will be used within the next 12 to 18 months.
It is a "safe" investment over the short term, but over the long term may prove to be riskier than other investments. The risk of a longer-term (five years and over) investment in a money market fund is that the buying power of your money will be eroded by inflation.
If the purpose of an investment is to provide a long-term stable income and growth, you must be invested in a well-diversified portfolio that will provide a return that beats inflation.
Such a portfolio will be structured in line with your investment profile, and your money will be spread across all asset classes.
Your entire investment will not be used at age 70.
It will have to provide you with an income for the next 20 years, which is why it is important that you invest your savings so that it can provide you with a stable income and maintain its buying power.
To achieve this, your savings should be invested in a well-diversified portfolio now and in retirement.
You may also consider investments that can provide you with a guaranteed income. Be sure to take note of the interest rate that you are locked into, as this rate will apply for the term of the investment.
There may however be more to the picture and a number of other factors that will influence your decision.
I advise you to consult a reputable investment adviser that will establish your investment personality, look at the bigger picture and advise you not only for the next three years, but also plan and guide you once you have retired.
Also discuss other savings vehicles with your adviser, such as retirement annuities that may provide certain tax advantages.
Be aware of all costs and taxes related to any investment, as this will have a negative impact on your investment return.
- Fin24
Do you have a pressing financial question? Post it on our Money Clinic section and we will get an expert to answer your query.
Disclaimer: Fin24 cannot be held liable for any investment decisions made based on the advice given by independent financial service providers.
Under the ECT Act and to the fullest extent possible under the applicable law, Fin24 disclaims all responsibility or liability for any damages whatsoever resulting from the use of this site in any manner.
