Question:
I have invested a lump sum of R175 000 in a retirement annuity in 2002 and to date this has doubled. I am 55 years old and the realisation date is June 2014. The money has been spread over different funds, namely Allan Gray Balanced, Allan Gray Equity, Coronation S Income and Momentum Smoothed Bonus. Now my financial advisor wants to invest all the money in one fund, in his company. Do you think the funds above are aggressive for my age? Tx
Answer:
Pinky,
To summarise, you own four funds: two balanced funds, both with a high(ish) equity weighting, one bond fund and one general equity fund. Assuming you are equally invested in each (ie 25% of your savings in each), you current asset allocation is roughly 57% in equities, 33% in bonds, 9% in cash and 1% in other asset classes.
This aggregates into a medium risk portfolio. Whether or not this is aggressive depends on when you plan to claim your retirement annuity. If it is within one year, then the mix is probably too aggressive, if it is within 5 years, it appears appropriate, and if it is beyond five years, you can probably afford to increase your equity exposure slightly.
Your asset mix was probably too conservative in 2002 (given your age at the time), and you would have done considerably better by having a higher equity weighting. The fact that your money has only doubled since 2002 is very disappointing. Over the last ten years, the Allan Gray Balanced Fund has delivered 18% pa return after its fees. So R175,000 invested in 2002, would be worth over R900 000 today (rather than the R350 000 you say your retirement annuity is worth). Even if you deduct another 1% pa to pay your intermediary for his sterling advice, you would still have had R840 000 by now. We can only assume that your intermediary was so spooked by the 2002 market crash that he put most of your money into the Strategic Income Fund. But even then you should have more than doubled your money by now.
It is somewhat curious that your financial advisor would appoint not one, but TWO fund managers to manage the asset allocation decision, and that he would then second-guess both of them by adding a Equity and a Bond fund on top of this. In effect, he has replicated an average market portfolio but at a very high cost (because you are paying active management fees for each component).
It would make sense to own just one fund if that fund takes care of the asset allocation decision for you, provides you with very broad diversification across all major asset classes, consistently invests you in a risk-appropriate portfolio (based on your age and expected retirement date), and that charges low fees. (The 10X RA has all these features, by the way). We would also caution against incurring fresh intermediary charges on transferring these funds as you have probably paid enough already.
We cannot advise you on whether you should follow your intermediary - in any event you have provided too little information on what type of product you would own, what asset allocation it would have and what fees you would pay. But you could perhaps use the above checklist to test his product.
