Turns out though, that if you want to invest via the website you need to “register” and once you have completed the form online, you will be issued with bank account details so that you can make the payment.

We made the recommendation to them that the document is made available and that the “register” button is changed to “invest” or “invest online”…let’s see if anything changes.

While spending some time on their website it is also interesting to see the age profile of investors in the RSA Retail Bonds…±40% of investors are under 50 and almost 22% are under 40 years old.

While there is nothing wrong with investing into the RSA Retail Bond, it is hardly a suitable investment vehicle for a 25, 30 or even 40 year  year old…but I guess that is one of the dangers of “cutting out the advice chain”

Investors may have got into the product without paying commission but a 25-40 year old investor sitting in the RSA Retail Bond is most probably in an inappropriate product…it is certainly not an emergency fund (you cant access it) and the majority of 25-40 year olds are not looking for income from an investment – it is capital growth that they need and for that, there are far more appropriate investment options (even if there are some fees to be paid to advisors).

A typical “balanced fund” unit trust has given returns of almost 15% per annum for the past 10 years. At that rate the money has doubled in value every 5 years while investors in the RSA Retail Bond will only see their funds doubling every 8 years…I know where I would rather be invested!

Related posts:

1. RSA Retail Bonds
2. Interest (ing)…
3. The real cost of the bond…

Just read an article online about how in these tough times one of the positive outcomes is that people seem to be investing more into their retirement funds. The bad news, though, is that it is still usually too little to enable most people to retire financially secure.

Of bigger concern for me, however, is that not only are most people contributing too little, but on top of this, most people are probably not taking enough risk on their funds. This has mostly to do with the fact that most funds are completely inappropriately named or labelled.

For example, where there is individual fund choice within a pension fund, there are usually 3 or 4 funds such as the “Aggressive Fund”, the “Balanced Fund”, the “Conservative Fund” and possibly a guaranteed or money market fund. On seeing the word “Aggressive”, most investors usually panic and run for the relative safety of the Balanced or Conservative Fund (after all this is retirement money so they don’t want to risk it). Balanced Funds in this context will usually have ±50% in equities with the Conservative Funds having even less. Now we know that the best way to beat inflation (over time) is to have exposure to equities. So while they will probably not lose too much in the down cycle as a result of this choice, they will most probably also not benefit sufficiently in the up cycles.

The problem, you see, is in the names of the funds. Remember that in terms of the investment guidelines for retirement funds, you can never have more than 75% of the total fund invested in shares*…so how can that ever be an “Aggressive” fund? In the unit trust industry, funds with 75% in equities are usually referred to as Managed or Balanced Funds. So why the inconsistency in naming when it comes to pension funds?

As a result of this inconsistency, my suspicion is that not only are people not saving enough money for their retirement, but on top of this, they are also being too conservative with their fund choices and as a result of this they will have even less than they expected when they retire.

Bottom line is that if you have time on your side (at least 12-15 years before retirement) you should most probably be in the most “aggressive” portfolio that you can – this is the greatest chance you have of achieving inflation beating returns.

So remember, when it comes to retirement money, you can not, by definition, have an aggressive fund – at least 25% of the fund will be in cash, bonds and property at any stage.

*yes, I know that technically speaking there could be up to 90% in shares and property, but the reality is that this is usually not the case, with most “aggressive” funds having 75% or less in equities with the balance in bonds and cash.

Related posts:

1. Dilbert on Finance
2. Just because it is raining it does not mean the drought is over!
3. Financial Planning for Dummies – Part 3

Earlier on this year, I posted a blog called “Will it ever rain again in Cape Town ?” This was during one of the driest starts to the year that we have had in Cape Town in at least the last 9 years and also during a time when it seemed that most of the Cape-fold Mountains were on fire. The just of the post was that as sure as winter follows autumn, it will rain again – even if it did not seem likely at the time. I reasoned that in the same way, the equity markets would recover – that’s what they are designed to do – and that it was not the death of equities as we know it.

Anyone who was sitting in cash and trying to time the market was in danger of missing out on its recovery. Sure enough, both “forecasts” have happened – it is raining as I write this, and markets are up (significantly) from their lows. The problem now though, is that if you ask anyone about how much rain we have had, or about how dry it still is in Cape Town) most people will answer that there was never any doubt in their minds that it would rain again or that there is no way that this was the driest start to the year – after all, look at how much it is currently raining (it was still, however, the driest start to the year that I have recorded in 9 years).

This phenomenon is well explained by behavioural finance! People tend to place over emphasis on the current and as a result tend to forget the past. So anyone who thinks that because equity markets have run hard and recovered well from their lows, that all is over and that there is no volatility risk from investing in shares, they need to remember the past.

Equities are the most volatile asset class and there will still be (significant) periods of (significant) volatility ahead. If this is going to affect your income and/or sleeping patterns then perhaps you should not be in them to the extent that you are. Equity investing requires time – 25% in 6 months is a great return but this is not a significant period of time! The way to iron out the volatility is to diversify your assets and to give your equity portion time.

So watch out, there could still be some dry spells ahead. Just because it is raining it does not mean the drought is over!

Related posts:

1. It aint over till its over
2. Just how much risk are you taking?
3. Anyone seen the fat lady?

I think there is a danger of throwing the baby out with the bath water here…equities are the most likely asset class to give you real returns over the long term…but they can be very volatile in the short term…and so the best way to think of them (in my opinion) is like the brilliant Heineken advert where the young techie “hikacks” the space probe and converts it into a bar counter with a Heineken on it…when asked “Now what?” He replies…”Now we wait…”

Same with equities…we invest and then we wait!

Related posts:

1. Do the Mickey Blue Eyes…
2. Guaranteed returns of 25%?
3. It’s going to be a long tax season…