Investing and retiring

Virgin investor Mpho asks:

I am a first-time investor and I’m interested in investing in the Satrix. I read their brochure, but I haven’t yet grasped the whole concept of investing in the Satrix. Is it a good investment product? Are the returns good short-term and long-term?

A Mike Brown of Satrix Managers replies:

Satrix are securities, listed on the JSE, that provide access to an entire portfolio of shares. So you buy one Satrix security and you get the performance not just of one company, which is the case with most JSE shares, but of an entire portfolio of shares. If you buy the Satrix 40, you pay brokerage and other transaction charges only once, but get the total performance of over 40 of the top blue-chip shares on the JSE. Buying this portfolio separately would entail paying brokerage and other JSE settlement charges 40 times.

The Satrix products only provide access to the large market cap shares on the JSE, thereby providing some degree of safety, as well as the reduction in risk and volatility that comes from owning a basket of diverse and established listed companies.

The Satrix products provide the actual returns of the main JSE indices at low cost. They can be purchased in the Satrix Investment Plan at a brokerage charge of 0,1% and an annual management charge of 1,0%.

In recent times, Satrix products have produced exceptionally good short-term returns (40% per annum growth over the past three years), but any investments in the equities market should rather be looked at on a five-year basis. This eliminates market volatility and enables the investor to benefit from the long-term growth of the South African economy and its main companies listed on the JSE, and can be bought easily and cheaply through Satrix.

Maya Fisher-French adds:

Satrix offers a range of indexes to invest in. The Satrix 40 is made up of the largest shares on the JSE and is therefore heavily weighted in resource shares such as Anglo American.

As commodities have performed well, this index has also done well, but if one wants an index more geared to the local economy then one can look at Satrix Swix which has a lower exposure to resource shares. Alternatively one can invest in financial or industrial or resource shares through the various Satrix products. Investing on a monthly basis makes a great deal of sense as you do not need to worry about market timing and if the market does experience a correction, you are simply buying more shares at a lower price.

The recently launched Satrix Divi invests in high dividend-yielding shares, which means you can receive an income from it. Personally, I am very excited about Satrix launching the Satrix Rafi which is based on a valuation index. This includes shares which are showing value relative to other companies. Over the longer term, value shares usually outperform, especially in a market that is fairly expensive. The exact date of the launch is still to be announced. Satrix 40 or Satrix Swix is a good starting point.

A reader asks:

How many years before retirement should I get advice about what do to with my pension fund on retirement?

A Riette Brune of Metropolitan Odyssey replies:

Most retirement funds will supply an option form to members within three to six months of retirement. This is the latest opportunity at which professional financial advice should be sought.

At this stage consideration must be given to how the accumulated (retirement) benefit will be utilised. A number of aspects need to be considered, for example:

  • What portion of the benefit should be taken as a lump sum? Where a person has outstanding debt, it may be appropriate to utilise the lump sum to settle these liabilities so as not to carry any unnecessary monthly expenditure into retirement.
  • What type of annuity should be purchased with the balance? A life/conventional annuity or living annuity or a combination? The features and benefits of available compulsory purchased annuities differ vastly and options need to be considered in the context of a person’s individual post-retirement needs.

Decisions made at this stage are critical, have long-term consequences and are largely irrevocable — it is vital that these not be made without a professional financial adviser. Appropriate advice can mean the difference between a comfortable, independent retirement and having insufficient income or income that cannot be sustained throughout retirement.

It is important to be aware that the average life expectancy is such that a person may realistically require income for 30 years after retirement.

Utilising retirement benefits optimally is the key. But, please note that if professional advice is only sought at this late stage, an adviser may be invaluable in advising on the options. It is too late to influence the value of the available benefit. Having a structured retirement plan in place aims to maximise retirement capital and thus the income to be earned after retirement.

The ideal retirement plan should be put in place and implemented as soon as a person starts working. To be able to plan as accurately as possible, the following aspects need consideration:

  • What is the retirement objective? In other words, how much income would a person need after retirement — sufficient capital needs to be in place to secure the required income.
  • Apart from income, are there any other capital requirements? For instance, the purchase of a new car at retirement or an overseas trip?
  • Appropriate savings vehicles (example: pension, provident or retirement annuity fund) must be considered to receive contributions/premiums. Most employers have pension or provident funds for employees to which the employer and usually the employee contribute monthly. If the savings in these funds are not sufficient or where a person is not in structured employment, a retirement annuity offers an alternative or supplementary savings vehicle.

Engaging an adviser this early ensures an on-going relationship and the adviser will monitor and review the retirement plan annually to make sure that one’s retirement goal and provision or plan are still aligned. A good retirement plan keeps pace with changing circumstances. Advice on appropriate investment funds into which contributions will be invested forms a vital part of the plan.

While the saying “better late than never” holds true, my advice when it comes to planning for retirement is emphatically: the earlier the better! If you do not have a retirement plan in place, contact a professional financial adviser and start saving today!

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