Are guaranteed funds meant for 30-year-olds?

“What investments should one consider for a 10 year period? The 10 year investments I took out with Old Mutual are in a smoothed performance bonus fund and optimised fund with guarantee,” asks Vaneshen.

Maya replies: In terms of the Old Mutual smoothed performance fund, this fund is excellent for people closer to retirement age who cannot tolerate the volatility of the markets. The fund smooths out the returns reducing the volatility and there is a guarantee element so that you don’t lose money just before retirement.

The question is whether this is the right investment for a person in their 30s with a long time horizon. With any investment product there are costs involved when you offer a guarantee. In the history of the markets there is no five year period where the equity market produced negative returns so the guarantee is largely redundant.

Basically you are paying for peace of mind that you don’t really need. If you understand the nature of equity markets and short-term volatility and have a longer time horizon then smooth bonus guarantee funds are probably not the right choice.

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