Retirement products (like provident funds, pension funds and retirement annuities) all come with various benefits and restrictions, thus it is important to understand how they work so that you can choose the one that is right for you.
Your investment return in retirement products comes from underlying investments such as unit trusts. These need time to grow and even the best performing investment can take a long time to return anything substantial. Unit trusts combine a group of investors’ money and an investment manager takes this pool and buys underlying assets such as cash, equities, property, bonds and offshore investments, according to the unit trust’s mandate.
Here is a quick rundown of the main asset classes to help you get started. Some are conservative, but it’s unlikely you’ll see returns that beat inflation.
Cash
As an investment, this refers to short-term loans offered by institutions (like banks, companies or governments), but at a slightly higher interest rate than a typical account.
Equities
These are shares in a company. Companies will issue shares to raise funds and they give you part ownership of the company. Equities have outperformed other classes over the long- term, but tend to display short-term volatility.
Property
Unit trusts typically invest in property companies, which are listed on the stock exchange. These companies get all their income from managing and owning property.
Bonds
Bonds are basically IOUs, but with structured terms defining the interest rates and payment schedule.
Only investing in one class may see you losing out on growth and is especially true of the more conservative classes. One asset class may deliver better results for some time, but the market can and will change. Finding the right time to move can be difficult and mistiming often proves costly. Many investors find that using an experienced investment manager helps alleviate some of that stress. Balanced funds allow you to diversify your assets, while complying with retirement fund regulations. If this is a bit overwhelming speak to someone you trust for recommendations or consult a good independent financial advisor who can help you make sense of it all.
Sorry, comments are closed for this post.