Offshore markets offer good yields for your PREtirement savings
The slow economic growth and potential weakening of the rand predicted for the year ahead mean that South Africans planning for their retirement should consider diversifying their investments and investing offshore.
But, warns Ralph Mupita, Managing Director of Retail Affluent at Old Mutual, basic investment principles such as “time in the market, not timing the market” remain paramount. “We like to think of it as the PREtirement age, which means the time that you have to save leading up to your retirement. Despite the turmoil in some markets, there are few shortcuts; people who plan ahead will reap more benefits than those who have to ’play catch-up.’”
As a rule of thumb, those who invest early in their years leading up to retirement can afford to take more risks than those with less time to save for their golden years, meaning the rewards of a long-term view of investment can be compounded.
“We can’t state clearly enough that simply ‘saving in line with inflation’ isn’t enough, and that it’s never been more crucial to get sound advice on how to capitalise on the many opportunities in diversifying your investments and venturing offshore.
“It’s important to get good advice on whether your retirement planning is adequate, and if there’s a shortfall, to address your savings one step at a time. It feels more achievable taking small steps in savings as opposed to viewing retirement as a distant, unattainable goal. Apart from providing peace of mind, various retirement vehicles are tax deductible within certain limits, whether your contribution is a lump-sum or a recurring premium contribution.”
Mupita adds: “The generally long investment horizon for retirement planning means it should ride out short-term market volatility. And right now appears like a good opportunity to invest offshore, with South African equities looking relatively more expensive than some foreign markets. By capitalising on the undervalued shares offshore, real growth benefits will increase your retirement savings as market conditions improve.”
A good time to increase your offshore exposure
Those who already have a PREtirement plan in place should consider increasing their international equity portfolio, especially those who hold less than the maximum offshore exposure now permitted.
Not only will this add diversification benefits, but this year is likely to see a weakening of the rand, which means now is a good time to increase your offshore investments.
Mupita explains that there are clear advantages from diversification, including reduced risk and exposure to fast-growing companies and industries not available within our borders.
He points out that Old Mutual Investment Group’s MSI (Macro Strategy Investments) boutique found that the optimal portfolio for SA investors will have at least 35% in international assets. SA’s equity volatility is also no less than 30% higher than that of international equity, making local equity a lot more risky. Furthermore, the MSI boutique forecasts a return from international equities of 6.5% above inflation over the next five years and believes this will be the best-performing asset class in real terms over five years.
The government’s easing of exchange controls has enabled those invested in active asset allocation funds to increase their offshore exposure through their fund managers.
“Although equities will deliver the best returns for you over the medium term, all indications are for significantly lower returns from most asset classes in the next ten years. It is therefore crucial for investors to ensure they save more and include as much equity as possible in their long-term portfolios in line with their risk profile and savings term. Now is a good time to sit with your financial adviser and assess whether your underlying investments are in line with current growth prospects,” concludes Mupita.
