Question: What Living Annuity funds would be appropriate to select, for around R2 million, during this time of uncertainty, with all the negative world news, and “rumours” of possible wars. I hope there is some kind of answer or advice for me. – T

Hi T*

Thank you for this living annuity question. I believe many readers can benefit from the answer.

It’s perfectly rational and normal to be concerned over mounting geopolitical tension. The mainstream news feeds paint a scary picture of the world today. Your concerns are especially valid considering these are your retirement funds. Many investors approaching retirement question their fund selection. They recognize, with nearly 2,000 funds to choose from, and the fact these investments often represent lifetime savings, the task can feel overwhelmingly daunting.

Firstly, in times of heightened uncertainty, emotions can drive investor behavior. This often prompts investors to shift their capital allocation towards lower-risk funds. But while lower risk funds usually provide much needed stability within a portfolio, it’s crucial to acknowledge that macro geopolitical tensions shouldn’t dictate this decision. Rather, when choosing funds for a living annuity portfolio, the primary consideration should be your personal risk capacity. Not current events.

Simply said, “risk capacity” represents the amount of risk an investor can take on without threatening their financial stability. This is established by factors like your assets and liabilities, current income, and your income requirement. Investors with a higher risk tolerance may opt for a greater allocation to growth funds even in times of uncertainty. This is because markets often discount fund prices far more quickly and accurately than investors realize.

If your risk capacity is higher, you could potentially be well served with something like the Satrix MSCI World Index Fund or the BCI Fundsmith Equity Feeder Fund, even though they are on the upper end of the risk spectrum. They may be appropriate as you could still have a long investment time horizon (especially if you’ve just retired at say 55 and your health is good).

There is also a strong argument to be made that much of the negative news is already reflected in the underlying holdings of the funds above. The old saying goes: “If it’s in the press, it’s in the price”.

On the other hand, based on your “risk capacity” scoring, along with a good understanding of your personal investment objectives, you might not have the ability to take on this risk. If you had a lower risk tolerance, your advisor may prefer income funds, like the Nedgroup Investments Core Bond Fund or the Coronation Strategic Income Fund, to mitigate short-term volatility the negative news flow is creating.

It’s important to remember, the primary goal of a living annuity is to provide investors with income.

Your portfolio construction should largely depend on your ability to take risk but we would also need to consider your overall current strategic investment allocation. Once we’ve correctly identified the appropriate split between income and growth assets, as well as created a targeted asset allocation, understood the rest of your portfolio (as well as your tax position), we would then be able to assist you correctly with the more tactical decision of funds that are appropriate.

So unfortunately, without having a full view of your investment portfolio as well as your current situation, I can only give you a broad picture of your options.

That said, I’m always happy to chat to readers about your investments and financial life. I am very fortunate that I found my passion in life early. If you would like to contact me, you can send an email to [email protected] marked for my attention.


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