Life-cycle investing gets its place in the sun

As life-cycle investing prepares to come into its own – it is widely believed to be the best investment solution to address National Treasury’s recommendations around defaults in all retirement funds – Sanlam has launched a new lifestage product. Launche

Marcus Rautenbach of Sanlam Employee Benefits (SEB) says the new offering lives up to the fundamental premise of life-cycle investing – the need to manage appropriate risk at the appropriate time. “There are two major potential pitfalls to retirement investing. Firstly if you invest too cautiously early on you end up with less then you need at retirement. And secondly, market volatility in the years just before retirement can chew up a large chunk of your savings.

“The distinguishing feature of the life-cycle investment strategy is that its overall asset allocation automatically adjusts to become more conservative as the investor approaches retirement age.”

He says Sanlam’s new product addresses both risks well and its stand-out feature is the choice it gives to those close to retirement. “It is no longer a one-size fits all investment offering as the person nears retirement. Six years before an individual stops work for good we consult them to assess which one of three categories they fall into: are they someone who has additional income streams for retirement so they can afford to stay in a slightly riskier portfolio, are they someone who requires guaranteed returns or are they someone who is highly conscious of the need for their retirement savings to keep pace with inflation. A different portfolio is tailored to each of these types of investor to ensure their retirement needs are met.”

He says the three options also help simplify the process of moving into a living annuity once the person retires. And to minimise market-related risk, transfers into one of the three options happens gradually over a 50 month period.

Rautenbach says lifestage investing could well be the answer to Treasury’s proposals around default in retirement funds. “We believe life cycle strategies such as Sanlam Lifestage provide a default solution that would put most retirement fund members in a better position as they approach retirement. Adopting strong default strategies is the ideal way in which retirement funds can pursue the national objective of making retirement savings more accessible and cost effective.”

He concluded that retirement funds can invest in Sanlam Lifestage through the award winning Sanlam Umbrella Fund or through free-standing funds who are clients of Sanlam Employee Benefits.