Use the opportunity to rebalance your portfolio but not to chase returns.
Vaneshen asks: I took out a retirement annuity (RA) at the age of 25 and now I’m 29. I recently read that it is possible to move between unit trusts. Is this true? Should I consider moving a portion of units into a more aggressive fund considering my age and time horizon or is this a bad idea? It is currently in a balanced fund with a guarantee.
Maya replies: It depends on the type of RA that you have—you would need to check with the company. If there is a guarantee built in there may be a time frame that you have to be invested. However, if you are free to switch, it would seem that you are in a very conservative fund given your age. Considering that you are investing for the next 30 years a guarantee is not necessary and it is expensive.
There are concerns over the value of the equity markets at the moment but given your time horizon you should be more concerned about keeping up with inflation than the short-term market movements. The beauty of investing monthly is that you actually benefit when markets fall as your rands are able to buy more units.
If you are comfortable with a more volatile return in the short-term the switch makes sense. However, a warning: be very careful of chasing returns.
What we find is that people tend to switch frequently between unit trusts chasing last year’s best performer and as a result tend to underperform the market.
Previous performance is no guarantee of future performance and generally a fund manager who shot the lights out the previous year tends to underperform the following year.
Select a good fund manager that has consistent top quartile performance and don’t get too worried about short-term relative performance.
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