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YOUR QUESTIONS ANSWERED

By Readers' letters Time of article published Dec 6, 2019

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Email your queries to [email protected] or fax them to 021 488 4119. This feature is sponsored by PSG Wealth.

WHERE DO I PUT MY MONEY?

I’m worried about where to put my money. Local, offshore - what is best?

Name withheld

Schalk Louw, a portfolio manager at PSG Wealth Old Oak in Tygervalley, Cape Town, responds: The financial aspects of our lives can be vast and overwhelming, so it’s easy to understand why it causes confusion, or perhaps anxiety and distress.

The task of managing your personal wealth can be broken down into many little pieces, and key among them, whether you’re an experienced investor or just starting out, is to ensure that your risk is well diversified. We live in an era where we can invest in a variety of asset classes, through various service providers and in multiple countries at the press of a button. You increase your risk by focusing on only one area or by doing nothing, simply because you can’t make a decision.

Some experts recommend that, based on the past few years’ tough economic environment, their clients should withdraw funds from their local investments now and invest in the “better-performing” US. They forget, however, that from May 1999 to May 2009, the US didn’t show any growth in rand-terms. In fact, it delivered negative performance over that period.

South Africa has one of the lowest correlations with the US, which means you can’t always draw a parallel between their economic performances. If you had invested 50% of your capital in South Africa and 50% of your capital in the US 20 years ago, South Africa would have been responsible for your portfolio’s performance in the first 10 years while the US suffered, and the US would have been responsible for good performance over the last 10 years while South Africa suffered. Investing in both countries, therefore, as opposed to only one of them, clearly seems to be the healthier option.

Diversification is at the heart of any healthy financial plan. If you still feel overwhelmed, chat to a financial adviser to assist you in best allocating your investments. The sooner you get on track towards your financial plan, the better.

RETIREMENT SAVINGS 

I have some formal retirement savings building up, but I’m concerned about outliving them. What is my best option once I retire?

Name withheld

Jan van der Merwe, the head of actuarial and product at PSG Wealth, responds: Once retired, living costs still need to be maintained but the challenge becomes avoiding drawing too much income from your retirement savings, so you won’t outlive your capital.

You could extend your working lifetime as much as possible, increase your contributions to retirement savings while investing in growth assets and you should put cover in place against risks that could deplete your savings (such as having short-term insurance and medical scheme membership).

In retirement, you should still get exposure to growth assets and could have some guaranteed income as part of your annuity.

A longevity-proof retirement plan requires being invested in the right products via a well-structured and balanced financial plan, tailored to your needs.

Post-retirement, an annuity product, invested in an appropriate manner, supplemented by longevity guarantees, with continued investment in growth assets could be a good combination to make your money go the distance.

You can make planning for longevity much easier with a qualified financial adviser by your side. Partnering with a trusted adviser can help to ensure you consider your plan holistically, while keeping emotional decisions in check. An adviser will help you in selecting the right mix of products, risk cover, medical scheme cover and underlying investments for every stage of your life, enabling you to be well positioned to cope with the challenges that longevity can throw at you.

EQUITIES 

I’m nervous to stay in equities given how volatile they are. Should I be looking at cash instead?

Name withheld

Adriaan Pask, the chief investment officer at PSG Wealth, responds: A key question is whether an investment in cash is going to help you achieve your long-term objective. Equities have been under pressure for a while, which has skewed the traditional risk-return dynamic in asset classes.

Typically, cash is on the conservative end, with lower risk, but also lower return prospects, while assets such as bonds, credit, property and equities have higher risk and return prospects.

The underperformance of equities has also filtered through to more historic returns in funds, making conservative mandates outperform more aggressive ones. These anomalous returns are leading investors to question their investment strategies. The key considerations are: “Will the next five years look the same as the past five years?” and “Will the unusual return profile of the past five years be repeated?”

Abandoning equities may not be the best option. If you have a long-term investment objective, you will most likely require some exposure to growth-assets to meet your goal. The best route is to stick to your financial plan, which was probably devised with a specific goal in mind. Along the way, you can adjust asset allocations slightly, and review whether your objectives are still relevant to reach your goals, but do this with the guiding hand of a trusted financial adviser.

MY YEAR END BONUS 

I might be getting a bonus at the end of the year from my employer, but there are so many options as to how I should spend it. Do you have any advice?

Name withheld

Magdeleen Cornelissen, a financial adviser from PSG Wealth in Menlyn, Pretoria, responds: The difficulty with annual bonuses is differentiating between what you could and should do with the money. The temptation will be huge to spend your bonus on short-term rewards, such as a new summer wardrobe or a holiday, but the money will be gone in the blink of an eye. Here are some suggestions for your extra cash:

* Debt servicing. Credit cards or retail accounts that are slightly in arrears could do with a bit of maintenance. This will give you a great head start in the New Year. Long-term debt might also be worth a thought. Putting the money into your home loan or making a slightly larger payment on your car loan could help ease some financial strain.

* Saving. Use it to boost your savings towards your emergency fund. Having a fall-back for minor unexpected expenses can really help to keep your monthly budget in check. Aim to accumulate three to six months of expenses before re-routing money you could save elsewhere.

* Investing. You should differentiate between your short- and longer-term investment goals. If you have a retirement savings plan, such as a retirement annuity or unit trust portfolio, your annual bonus could make for an extra boost. Or make a start if you’ve fallen behind. The best time to start saving for retirement is now, as the sooner (or later) you do so will determine how soon you can afford to retire, and how comfortable your retirement will be.

PERSONAL FINANCE 

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