My retirement fund capital has been invested in a living annuity, from which I receive an annuity on a 6% draw which covers all of my expenses and leaves me with about R2 000 free cash per month.
I have an emergency fund and no long- or short-term debt.
My wife works full-time and earns a good enough salary to cover all of her expenses and the grocery budget, as well as some savings. I will be 51 this month.
I have about R200 000 in a savings account which I would like to invest for capital growth and, later, if necessary, to supplement my LA income.
However, I have looked at various options and frankly, after having spoken to “experts” in the various investment disciplines mentioned below, I have realised that I need some objective advice. Please assist.
Stephen Katzenellenbogen, CFP and director at financial services group NFB, responds:
As you already have an emergency fund and sufficient income, it does make sense to look at something longer-term in nature.
Let's take your listed options one by one.
You write: "I have been offered a discretionary investment by my financial adviser, similar to the living annuity but investing in a few unit trusts which invest offshore, as I would like some geographical diversity.
"A seemingly safe investment, however, the JSE seems to be on a bull run at the moment, and I wonder if it is quite the right time. I wonder if it would be better to wait for some pullback before jumping in."
On both a relative and absolute basis, foreign markets are attractive against the local JSE. Foreign exposure is a good diversifier in a portfolio and the amount of exposure to include in a portfolio is investor dependent.
Just because a solution is simple does not preclude it from being good. Please make sure you understand the product correctly as a discretionary investment is very different to a living annuity when it comes to tax and liquidity.
A last point is that most investment products allow you to phase in your money over a period of three to 24 months. You can thus rand-cost-average your unit price and potentially avoid buying a market at its peak.
You also say: "I have also looked at investing in the Robert Falcon Scott fund at Emperor Asset Management, because of its fantastic growth, but it seems somewhat risky."
This fund is classified as an alternative strategy or hedge fund as it can take short position. Said another way, they can profit not only from share prices going up but also going down, if they are positioned correctly. Never invest in something you do not understand. If you place money with a fund such as this one, it is important to understand what the manager is doing with your money.
"Thirdly, I have considered being directly invested in the stock market by buying shares on the JSE, but find the amount of research required, and risk involved, quite daunting, not to mention the costs. As mentioned above, the JSE on a seeming bull run at present, so I wonder if it is the right time?"
It is always safest to give your money to a professional to manage, as they have vast resources at their disposal.
When dealing with relatively small amounts by buying into a unit trust or an index, you can diversify your investment as you buy a pool of shares. On the other hand, your direct investment might only allow you to buy a handful of shares. The costs are also typically efficient because you are bulking up with other investors.
The JSE is trading significantly above its long-term PE. However, it is always worthwhile remembering that investing is about time in the market and not timing the market. As discussed above, you may consider not putting all your money at once into an investment.
"I have also considered the buy-to-let option, which I find appealing, as it is more 'hands-on', but the uncertain economic and political climate in South Africa concerns me, as such an investment is not quickly liquidated. I also could not financially survive a few months of rental non-payment of vacancies."
You have answered your own question correctly, pointing out the liquidity and cash flow considerations. Property can be a good investment as long as you are aware of all the entry and exit costs and ongoing obligations.
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