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UNIT TRUSTS:RMB Balanced Fun... A spurt of growth upon retiremen... Has Wall Street succumbed to "mad bull" ... Betting on a bottle of the best bubbl... Taking on the role of trustee ... |
A spurt of growth upon retirementEARLY BIRDI HAVE been forced to take early retirement. When I do, I will receive a monthly pension plus a gratuity (lump sum). Let's first tackle the monthly pension. This will be an amount on which my wife and I will be able to survive adequately and save a modest amount of about R200 a month, for at least the first five years. So by and large we will be okay for the first period, after which I will no doubt have to somehow supplement my pension. I intend to use my gratuity to settle all my debts, including my bond which currently stands at R54 000. This will leave me with around R95 000 which I will be able to invest for a five-year period without, hopefully, needing a cent of the interest accrued. My only option, as I see it, is to increase the R95 000 by as much as possible during the aforementioned five-year period and thereafter take stock anew of my situation. I would welcome any advice on how I can go about doing this. Kathryn McCarthy of The Appleton Group replies: For now, let's ignore the R200 odd that you will be able to save each month. Rather use this as a buffer for unexpected expenses during your first five years. Your first priority in that time is to maximise capital growth. I recommend equities and gilts. Over the past 20 years or so in SA, equities have outperformed all other asset classes - so they are an attractive choice for capital growth clients. Gilts are good generators of income and can also provide capital growth. Property is a popular choice for income and capital growth, but it is not liquid and entails high transaction costs and often tedious maintenance. Unfortunately, modern portfolio theory convinces us there is a tradeoff between risk and potential return. So to achieve maximum potential return, it is necessary to push up the risk spectrum. The level of risk beyond which you will no longer feel comfortable can be determined by analysing your natural propensity for risk. A qualified portfolio manager will take this into account when structuring a portfolio of equities, gilts and cash (it is always a good idea to maintain a degree of liquidity in a portfolio) to suit your individual requirements. Over time, you could well discover that your propensity for risk declines and hence the structure of your portfolio becomes less aggressive. At the end of the stated five- year period, your needs will change from maximum growth to wealth preservation and income generation. Choosing the right portfolio manager is of paramount importance. Appointing a portfolio manager will also allow you to relax about issues such as tax. Explain to them portfolio manager how much income you require, monthly or annually, basis, after taxation. It then becomes a portfolio decision as to whether this income is derived from high-yielding shares, gilts or interest on cash.
CHANGING FUNDS I have also invested between R1 500 and R2 000 in Iscor shares. Do I sell or keep them, or reinvest? Should I invest any money in the top-performing offshore unit trust funds or stay local? If I were to go overseas should I take this money with me or leave it invested here? David Burd of Brantam Financial Services replies: It would be a costly exercise to switch your funds from Old Mutual to another unit trust fund manager, as this would involve 5% to 6% buy/sell margin costs. However, I would suggest that as your portfolio is not huge you consider the following: retain R15 000 in the Investors fund and switch the balance, plus your entire holding in the mining fund (about R20 000), into the Old Mutual Small Companies fund and the OM Industrial Fund (split it 50/50). This can be done at minimal cost - as your funds remain with Old Mutual - and will give your portfolio a better spread with greater growth potential. Your small holding in Iscor should be redeemed as, because of their recent poor results, the potential for growth is not too good in the short term. Add these funds to one of the above unit trusts. The main attraction in investing offshore is possible growth created by the depreciation of the rand. However, with SA's high inflation and interest rates, a good local unit trust should outperform an offshore fund. But by all means invest some funds offshore if it makes you feel good being in sterling or dollars. If you are thinking of emigrating and have a portfolio in excess of R500 000, consider repatriating your R200 000 now. If your portfolio is not big, your funds should do better invested locally until you physically move overseas, then take them out with you. ý We regret no personal correspondence can be entered into. The Sunday Times accepts no responsibility for the advice given in BT Money.
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