Email your queries to or fax them to 021 488 4119. This feature is sponsored by Old Mutual Wealth.


Playing it safe can be risky

What are the repercussions of being too conservative when investing?

Richard Rochester


Jason Bernic, Financial Planning Coach at Old Mutual Wealth, responds: It’s tough to decide which investment strategy to follow. The closer we get to retirement, the more stressful that decision becomes, because making the wrong decision can seriously affect our quality of life in retirement. As a result of this concern, our natural instinct before retirement is to put our money where it is considered safe. This often means a more conservative investment strategy, and, in many cases, it entails being heavily invested in cash. If the market falls during the year in which you retire, you should be safe. If it does not, you’ll still be able to sleep at night. So overall, it seems like a good idea, right?

Wrong. In fact, this is one of the greatest mistakes investors make. You need to give yourself the best possible chance to get as much as you can by retirement, with as much certainty as possible. The five years prior to retirement are particularly crucial to achieving this.

So how can you grow your money before you retire, and what can you expect? For the best possible growth, you should be exposed mainly to shares, because a responsibly managed, share-focused strategy can double your investment roughly every five years.

Although share market returns are not guaranteed, your chances of a positive return increase over longer terms. By investing in a responsibly managed and diversified share portfolio, your chances of getting a high positive return become better yet. Also remember that your investment term does not stop when you retire. It stops when you stop – which could be more than 25 years later.

So is it worth taking the plunge into a share portfolio? Ask yourself whether you can afford not to. The more time you have available and the more disciplined you are about not switching in and out of investments, the lower your risk and the better your retirement lifestyle could be. Remember that an expert financial planner can play a vital role in this regard. Don’t be afraid to pay a fee to obtain sound advice – it may well turn out to be the most valuable thing you’ve ever bought.


Tips for planning for retirement

When planning for retirement, what are some of the things I need to be aware of?

M Khoza


Jason Bernic, Financial Planning Coach at Old Mutual Wealth, responds: Retirement is a major event in people’s lives and it is critical to put the correct investment strategy in place early. You need a plan to make your money last, particularly now that people generally live longer and risk outliving their savings.

You need to think about how you want to spend your time in retirement, and what the associated costs are. A common misconception is that expenses fall in retirement. In reality, expenses often rise, and not only because you may incur more medical expenses. With more leisure time, people often spend more on eating out, travelling, hobbies and other activities.

You need to think about how much income you can realistically draw from your investments without eroding your capital. Understand what you have, what you need and how much risk you need to take to get it. This is where a financial modelling tool comes in handy. It can help you (with the help of your financial planner) to create various scenarios to understand what type of investments are best for you, given your age and stage in life. It can help you to decide on an appropriate course of action.

Start building your capital early to ensure that you accumulate enough to retire comfortably. Compound interest can have a significant impact on the growth of an investment and is more powerful over a longer period.



How vital is past performance?

Is looking at a fund’s past performance hindering my investment success?

Johan Krige


Jason Bernic, Financial Planning Coach at Old Mutual Wealth, responds: Investors are naturally drawn to top-performing, actively managed funds and many investors looking to maximise returns often select funds solely on their previous performance.

This is not the wisest approach to fund selection, as past performance does not necessarily indicate how the fund will perform in the future. The result is a performance-chasing approach in which current funds are sold from a portfolio to make room for recent winners. This behaviour can be misguided: recent research has shown that, over the past decade, a buy-and-hold strategy has outperformed a performance-chasing strategy.

Although performance is important in investment decisions, other factors, such as asset allocation, are critical to ensure that the fund meets its targeted return. Fund managers spend enormous amounts of time researching companies, as well as the macroeconomic factors affecting them, and they continually realign their fund composition with their findings. This means that, in one year, it may be best to have a higher weighting in equities, and the next year, if equities are showing lower expected returns, it may be better to invest in fixed-income instruments. The fund manager has all of this information on hand, understands the effect of the current themes in the market, and adjusts the fund accordingly.

To improve the odds of long-term investment success, you need to remain disciplined in your investment approach and avoid the temptation of chasing performance or looking backwards. Know that some periods of below-average performance are inevitable.


Should I invest offshore?

I am worried about the declining rand. Should I take my money offshore?

M Hassan


Jason Bernic, Financial Planning Coach at Old Mutual Wealth, responds: Offshore investing has always been a hotly debated issue, and recent developments have not helped. With the high levels of emotion around our political and economic situation, the offshore investment debate has been given new vigour.

Daniel Kahneman, a behavioural psychologist, won a Nobel Prize for economics for showing us that investors react roughly twice as emotionally to a loss as they do to a gain. Furthermore, people become anchored to current developments without even considering possible future scenarios. The combination of these two mental biases often leads to poor and irrational investment decisions. If we consider the media attention our currency, economy and political environment have received over the last year, it is easy to understand why some investors are looking to take their money offshore.

There are generally three main reasons for wanting to invest offshore:

• The first is to have a hedge against the depreciating currency.

• The second is economic diversification. The rationale is that you can favourably diversify risk if you invest in economies that behave differently to ours. However, investors should ensure that they get the appropriate market exposure and that it is actively managed. Many investors who take their money offshore often end up leaving it in cash.

It is also vital to understand that other economies do not necessarily perform better than our own. From a return perspective, the grass is not always greener on the other side, so do your homework first.

• The third reason for investing offshore is political risk. When the rand dropped against the US dollar at the end of last year, many investors fled overseas to protect themselves. The rand’s subsequent return to more realistic levels has left many retirees in a position where they needed to start working again. If you want to invest offshore due to political uncertainty, ask yourself whether you can afford to be wrong.

Before deciding to go offshore, be sure that you are doing so for the right reasons and that your offshore portfolios are effectively managed to complement your local portfolios.

Remember, it is generally best to stick to your investment strategy, especially during periods of short-term volatility.


Old Mutual Wealth provides integrated wealth planning and goal-based planning through financial planners, backed by global expertise and research. In order to create Old Mutual Wealth, Old Mutual has consolidated the expertise and resources of several established businesses: Acsis, Fairbairn Capital, SYmmETRY Multi-Manager, Old Mutual Unit Trusts, Old Mutual International, Celestis, as well as some investment consulting resources from Old Mutual Actuaries and Consultants. Strengthening Old Mutual Wealth’s position is the recent acquisition of Fairheads Trust Company.