Question:
I have money in an Allan Gray Provident Preservation Fund. Between 1 April and 30 June it lost almost R10 000 in value which is alarming as this is my only retirement money.

I made one withdrawal a couple of years ago when I suddenly needed funds so I can't make another, which means my money is stuck there and if the current trend continues it looks like it will just steadily decline every month.

What happens to my money should I emigrate? Must it stay here or can I move it overseas?

I'm 48 so not near the required 55 years retirement age when the money becomes available, or can I 'retire' early? I work for myself.

I contacted Allan Gray, but the answers they gave me were so confusing that I'm now trying another route.

Answer:
The last year has certainly been a rollercoaster for those of us who have money in the markets. It is particularly difficult for us to maintain a sense of perspective when we know that we will need this capital to retire in the relatively near future (10 years or less). There are, however, a few guidelines I believe we should consider before we make decisions to move our money elsewhere.

When our investment performance is not great, the first question we need to answer is whether this has been because of the investment manager (which we can change) or because of the market itself (which we can’t). Between 1 April and 30 June this year, the All Share Index (the benchmark for the South African stock exchange) was up 3.4 percent, so we know that the market did not drop significantly during this period. We do, however, often find that in shorter periods (actually, over any period), there are no investment funds that exactly match the index. This might happen because fund managers choose to limit their exposure to certain shares because they believe they are at risk, or because an investment manager will rather focus on buying those stocks that they believe will deliver better results over the longer term and not the next quarter. So, on this count I would urge you to find out exactly why your fund’s performance was lagging before you decide to move.

The second question you need to ask is whether you are up to stomaching the ups and downs you can expect from a share-based investment. Research has shown that people on average react twice as emotionally to losing money than they do to making money. So, after the last year there are quite a few very upset people out there.

It is important to remember that these risks even out over time. Historically, South African shares have never lost money over a period of ten years or more. But the more often we look at the value of our investments and focus on short-term performance, the greater the chance is that we will see it losing money. Short-term performance in the share market has always been volatile and always will be. For your own sanity, rather consider assessing where you are once or twice a year and then try to benchmark your growth against how much you put in and not against how much you had the last time you looked.

Taking the above into account, it is best to make sure that you are moving for the right reasons and that the move you make will still allow you to achieve your financial objectives. Typically, the less short-term risk you take the greater your chances will be of your capital not growing enough to help you meet your lifestyle objectives going forward. A proper financial planner will help you understand how much growth you need and what kind of behaviour you should be expecting from your portfolio in return.

If you still want to move, you have two options. You can either switch the portfolio in your preservation fund to another (more conservative) fund or funds or you can transfer your preservation fund to another investment manager. Again, a financial planner will help you with this.

If you choose to emigrate, your preservation fund has to remain in South Africa until you reach your retirement date (see paragraph below). Upon retirement you will have the option to take a portion of your fund in cash. How much this portion will be will depend on whether you were in a pension preservation fund (a third) or a provident preservation fund (in which case you can take it all). After you have paid tax on the portion you have taken in cash, you can take it abroad, subject to Reserve Bank approval. The portion you cannot take in cash has to go towards an annuity which will pay an income into a South African bank account. Once in the bank account, the funds can be taken overseas. This process does, however, require some specific considerations which a specialist financial planner will be able to help with.

Your last question was whether you would be able to 'retire' early from your preservation fund. Unfortunately, your retirement age from a preservation fund is determined by legislation and is, after some recent amendments, age 55 earliest. You can retire at any stage after that.

I hope that this gives you some clarity on what your options are. As a parting thought I would urge you to very carefully consider moving your investment. Making emotional decisions at the wrong time is one of the major reasons why investors tend to erode their wealth. By rather focusing on long-term trends and market behaviours you will not only give yourself the best chance of success, but probably sleep somewhat easier in these tough times.

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