How to reduce risk

While we want to ensure funding for retirement, we don’t want to be servicing debt when we get there. While returns on investments cannot always be guaranteed, what you are paying in interest and can save by settling your debt, is guaranteed. So, settle debt or at the very least, reduce the debt.

The one thing that you will need is access to funds at retirement for unplanned events, and for needs other than income, so don’t lock all your funds by just buying an annuity to provide income.

The next part of reducing the risk is to be invested. If you are not investing, then the chance of having insufficient funds at retirement is 100%.

Where you invest, will be the next step. Putting funds away for retirement does not mean it must be invested in an RA. An RA does offer advantages, such as tax rebates, no tax within the funds, and protection from creditors, but it also limits access. Conversely, investments such as unit trusts offer this flexibility and access.

The one thing that you will need is access to funds at retirement for unplanned events, and for needs other than income, so don’t lock all your funds by just buying an annuity to provide income.

Market conditions will also influence the capital we invest. The trick is not to panic, or try time the markets. Selling out of funds when markets are not doing well, locks loss in. Buying when markets are high, is costly. The longer you stay invested, the more likely you are to see above inflation growth. The shorter the term of your investment, or closer you are to your retirement, the more conservative you should be.

A diverse portfolio will also reduce risk. Investing in one asset class or only in a specific sector in the market, adds unnecessary risk. While you should have a long-term view and remain invested, you should also revise these funds from time to time, lock in profit and adjust your risk profile as you get closer to your retirement date, and as economic conditions change. Using an expert in this field who is not emotionally attached to the decision making, will also reduce risk. Have a look at how Stringfellow takes advantage of a multi-managerindependent and hands-on approach to reduce risk and up the returns.

Once retired, being too conservative can also be risky. Gone are the days where we can rely on bank interest rates to keep us going. Inflation over extended period, will outperform cash. The other problem is life expectancy. We are living longer and longer and our capital reducing more and more. So, you would still need some sort of equity exposure to maintain growth above inflation over a period north of 5 years. If we are looking to have a guaranteed income, then a guaranteed life annuity can be purchased however we should also be comfortable that the requirement of legacy or leaving the capital to beneficiaries will most likely not happen.

What we draw as an income, and keeping up with inflation, will also influence the capital. Medical inflation is higher than normal inflation, currently around 10%. So, the bigger the part medical aid plays in your budget, the bigger your inflation target should be when working out how long the capital must last. As we grow older, the more chance we have of getting sick or needing medical attention. It’s for this reason that you need to bear medical expenses or medical cover and the costs of it, when planning for retirement. Medical costs are also a risk to your retirement savings.

Taking these factors into consideration, getting sound advice will go a long way. Having a financial advisor with experience and a good track record in the investment arena will mean that you get advice that’s not only practical, tax-wise, but also helps condition your investment for current market conditions.

Stringfellow…

The advantage of using a company like Stringfellow, is that not only do we have qualified wealth planners who consider tax, circumstances and budget into account, but they’re also backed by an award-winning asset management team.

The returns of the Stringfellow funds over a 5-year period, have been above benchmark and that of the sector average, with Stringfellow Investment Specialists having been awarded a Raging Bull Award.

Stringfellow Advisory Services specializes in Retirement and Estate planning. For an insight into our company please visit our website www.stringfellow.co.za

Are you covered?

Do you need a retirement fund? The simple answer is yes. But knowing how much to you’ll need can be tricky.

If you haven’t started your retirement funding, Stringfellow offers a wide range of solutions and will custom build your solution.

If you would like advice on retirement or investment opportunities, please do not hesitate to contact the Stringfellow team. We’re here to help.

Image: Clinton Naik
Image: Alice Pasqual
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