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the importance thereof

by Alec Riddle

More and more Retirement Funds, such as Company Provident Funds, are providing their members, or employees with an investment choice. This implies that the member has to decide which fund they should be investing in.

The problem is that with Members increasingly having to make investment decisions, whether they like it or not, they could be making ill informed or uneducated decisions relating to investments and their fund choice.

According to the Sanlam Employee Benefits Survey almost two thirds of members have been relying on the Trustees of their Fund to make the fund choice for them, alternatively they have relied on the default choice.

A major concern is that only a small minority of people are properly equipped to make informed, or educated decisions, relating to investments and many members could be unwittingly destroying their Retirement Plans.

Let’s use an example and limit your choice to three possibilities, a conservative fund, a moderate fund and an aggressive fund. In the current economic and investment market climate, people who do not understand investments, asset allocation, the benefits of time and diversification, could be forgiven for immediately ticking the conservative box.

Emotions are the great destructor of wealth, greed and fear being the two major culprits.

You are more than likely making a choice, as a result of fear, or a lack of experience or knowledge, when you should be making your choice based upon strong fundamentals and a properly developed Financial Plan.

So let’s take a look at the second quarter of 2009, to see where the smart money is heading. As institutional investors have been increasing their exposure to equities, retail investors or private investors have continued to plough money into local money market funds, which attracted a whopping R14,8 Billion in the second quarter, according to Leon Campher, CEO of Asisa.

At the same time, more and more Retirement Fund Members have been choosing more conservative funds. For the past 3 to 4 months, Money Market funds may have returned a little close to 3%, but the All Share Index has recovered 21,7% since its lows in early March. This does not mean one should necessarily shift to aggressive funds, it merely illustrates that even in volatile times and uncertain markets, there is value to be extracted in the market.

Unfortunately most South Africans are leaving their Retirement Planning and Investment Choice to Lady Luck, when they should be investing in a Certified Financial Planner (CFP). A Planner should be well equipped to assist you to develop a plan and identify what you require based upon your needs, goals and values and your investment time horizon.

Alec-Riddle-Lighting-torch

Alec Riddle (Financial Planner of the Year 2009) is an independent certified financial planner at Money Talk Lifestyle Financial Planning.

For enquiries contact Alec at (041) 37 37 999; info@moneytalk.co.za or visit the Money Talk Lifestyle Financial Planning website www.moneytalk.co.za. Money Talk Lifestyle Financial Planning is an authorized financial services provider.