Question:
I am changing jobs soon and have approximately R530 000 from my current pension fund which I need to transfer into a preservation fund (or something similar).

Without going through a financial advisor, could you recommend a good, solid investment (I’ve looked at Allan Gray, Investec, etc. — a lot of options, and of course I’m getting a lot of advice from different people).

I’m currently 39 and plan to retire when I'm 50 or 55 years of age, so I can take a bit of risk with the portfolio, but overall it must be a stable growth fund.

Answer:
I’m really pleased that you acknowledge the importance of preserving the retirement savings you have accumulated thus far. Many would be tempted to take some, if not all, to pay off debts, but this would seriously affect their ability to retire financially independent.

The first part of my answer revolves around your need for a good investment. It sounds like what you have been examining, with a little help from your friends, is not investment funds as such, but rather investment managers.

The mistake that most people make is to look at the funds under management (in your case the stable growth funds or moderate risk funds) and then review their historical performance figures in order to pick a fund and manager that has performed relatively well compared to its peers. The reality is that past performance has absolutely no bearing on future performance and no-one can accurately predict the long-term performance of a fund or manager.

Instead, a better approach is to apply some sensible investment rules. When one has a long investment time horizon (over 10 years), a fund that is more geared towards growth assets such as equities and property (and therefore classified as higher risk) will probably perform better than a fund classified as low or even moderate risk over time.

The decision around which type of fund to invest in will depend on various aspects and not just one’s risk appetite.

These include (but are not limited to) the investor’s investment objective and the other assets he/she holds (i.e. where someone already holds a certain asset class with the relevant risk structure) because diversification is a top investment rule.

For example, if an investor owns a flat and rents it out as part of his/her retirement strategy, it wouldn’t be prudent to invest his/her pension in a property fund. Instead, he/she should be advised to diversify into other asset classes.

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