Question:
Hi there, I currently have a provident fund with my employer, the company pays 10% of my monthly salary...about R2600. I also have a Retirement Annuity with Old Mutual and the current premium is R1 200. I need some advice...should I keep RA even though I have a provident fund with my employer? or should I rather pay that money into my bond, I recently bought a property for R690 000,00 and bonded it with FNB and paying an additional R2 000 into my bond to settle it sooner than 20 years. just need advice on my Retirement Annuity though. do I risk losing my funds if economy does bad? will it be worth it when I retire at 65 or should I rather pay that into my bond? I am dreaming about investing in another property in cape town hopefully, when I can pay up my bond In JHB soon enough...thinking about treating that as some sort of funds for retirement as an asset? I am looking forward to receiving sound advice from you as I am really confused as to what I should do.
Answer:
Millicent, We are not legally allowed to provide advice on this forum, only information. In any event, your question would require a very lengthy explanation/comparison on the risk and return expectations of different asset classes and investment products, which is beyond the scope of this forum.
Some principles you need to consider: In short, if you want to lower the financial risk in your life, you should reduce your exposure to debt (ie your bond). If you want to provide adequately for your retirement, then keep investing in your RA, but make sure you are invested according to your investment time horizon (ie mainly in shares if you are young) and that you pay low fees on your RA (less than 1%!). Over time, and on average, the long-term return you can expect from the share market should be higher than the return you will get on your property. In the short term, the interest saving on your bond may be higher than the return on your RA.
An RA will diversify your investment exposure across many different asset classes. If your main investment is a property then you have concentration risk. The value of the house may decline, or you may not be able to rent it out at certain times, which will directly affect your retirement income. If you are still young, then what happens to the economy today, or over the next few years, will have no bearing on how much your RA will be worth when you retire. In fact, if the market comes off, this just means that your contributions will be able to buy more shares than if the market was high. The only time you want the market to be high is when you are selling shares. As a young investor, you will be buyer rather than a seller of shares for many years to come still.
