Best spread for my retirement portfolio

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A Fin24 user writes:

I have R4m in a family trust currently, in a money market account. This should grow in monthly increments of around R75k over the next 24 months.

In addition, I enjoy a more than adequate income and do not anticipate drawing income from investments over the next five years.

In my personal capacity I have R1.7m invested in unit trusts and exchange-traded funds (ETFs), and R1.6m in retirement annuities (RAs).

My home is fully paid and I am debt-free. My age is 59 and I have a relatively low risk aversion. The question is how to invest the funds in the trust in unit trusts or similar vehicles, with reference to asset allocation both locally and offshore.

Sanlam Financial Planning Analyst Vivian Govender responds:

If you view your entire portfolio as the money in the trust plus unit trust investments, ETFs and RAs, it will bring you to a grand total of R7.3m. You have indicated that you are a conservative investor who is debt-free with no income needs over the next five years.

You will reach age 65 after this period, and I assume would want to draw an income from your investments. Based on this, the main objective of your portfolio over the next five years would be growth in excess of inflation.

This would be a good time to establish your current total asset allocation and how this compares to your investment profile. It will indicate whether you are currently over- or under-invested in the various sectors of the market, and provide the ideal opportunity for you to realign your entire portfolio to your investment profile.

Given that the investment in the trust will be a large amount, a possible option would be to invest a portion of these funds in a direct equity portfolio through a stockbroking firm.

This will provide active portfolio management and the fee structure may be more favourable compared to that on a unit trust platform. This can form a portion of the equity exposure needed in your portfolio.

When income becomes a greater need, the equity portfolio can be realigned to provide an income (through dividends).

A unit trust platform can be used to invest the balance of the funds to diversify among other asset classes, such as bonds and cash. This will also provide access to offshore funds. Ensure that you further diversify your offshore exposure through the various asset classes.

Currently the funds invested in the trust are earning interest, which is fully taxable in the hands of the trust and reduces the real return before inflation has been taken into consideration.

The equity investments may prove to be more tax efficient, as tax on dividends is levied at 15% and capital gains tax is only payable at the sale of the investment.

Do consult a reputable investment adviser, who will analyse your entire portfolio and structure the investment in the trust in line with your overall investment profile.

 - Fin24

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