For most South Africans their Retirement Annuity (RA) is something they think about twice in their life. First when they sign up for their monthly debit order and second when they're getting close to retirement and need to access the money.
In between, your cash is likely spread across a selection of unit trusts that are largely based on the JSE.
For offshore investments (which usually get an allocation well below even the regulatory limit) a fund of fund approach was the default. For decades this approach worked. But over the last few years, it has fallen seriously short.
The reason for the catastrophic failure is simple.
Our local market used to regularly outperform the global average. This meant that simply investing in reasonably diversified local funds usually gave you a “good enough” return for a comfortable retirement. Over the last few years, however, this is no longer true.
Our market has been giving below average historical returns for several years. This means that many of the assumptions made a decade or more ago about how your investment funds will perform are now almost certainly incorrect.
In addition to returns, something I could call “the quality” of the market has fallen. South African companies have been rocked by a series of corporate scandals. Steinhoff is the most famous but by no means unique. At the same time, the overall growth index growth has been driven by just a handful of counters, Naspers being the most important. Finally, the rise of passive funds may mean that market prices are slower to reflect the changes in underlying fundamentals.
So, not only has your retirement investment likely underperformed, but it's also possible you're sitting on a ticking time bomb.
In such an environment, simply buying a tracker fund may not be sufficient. You may require a more “hands-on” approach.
Luckily, such an approach is now available to everyone.
Instead of the usual spread of unit trusts, you can now put your money directly into a Personal Share Portfolio (PSP) which sits inside your Retirement Annuity or Living Annuity. This means you can have your retirement funds actively invested within a regular share portfolio. This is true for both your local and offshore allocations.
So, why should you rather use a PSP over the traditional approach?
There are three main benefits to consider when using a PSP for your retirement funds.