Smoothed Bonus Funds weather market volatility

Danie van Zyl, head of guaranteed investments at Sanlam Employee Benefits (SEB).

As volatility continues to strike financial markets, many pensioners have begun nervously glancing at their investment portfolios. Pensioners invested in living annuities are feeling especially vulnerable as they are dependent on stable returns to ensure their retirement capital does not decrease. In light of this, it is an excellent time for retirees to invest in a smooth bonus retirement product, says Danie van Zyl, head of guaranteed investments at Sanlam Employee Benefits (SEB).

“Unfortunately market volatility often acts as a trigger that causes members to behave in a way that destroys value,” says Van Zyl.

This happens largely in two ways:

1. Trying to time the market, actively switching between cash and a high equity portfolio in the hope of benefitting from market upswings while limiting losses when the market goes down. It is near impossible to get this right in the long term. Most investors unfortunately end up getting their timing wrong, i.e. selling low and buying high.

2. Investing too conservatively in cash-only strategy to ensure that capital doesn’t decrease. Unfortunately these members often adopt an overly conservative strategy and, over time, their income is not able to keep pace with inflation. By the time these pensioners reach their eighties, the purchasing power of their pension has decreased to such an extent that they can no longer maintain their standard of living and pay for medical expenses. This is sometimes referred to as ‘reckless conservatism’.

“The problem is that these members still need to invest in a portfolio that is likely to provide inflation-plus returns over the long-term, but they cannot handle the volatility of a portfolio with even a moderate exposure to equity.”

Van Zyl says SEB has received many requests from pensioners invested in a living annuity to switch to the Monthly Bonus Fund. “This is unsurprising. The Monthly Bonus Fund provides bonuses which cannot be negative, offers stable and predictable bonuses in a variety of market conditions and has comfortably outperformed inflation by quite a margin over the last 10 years.”

The Monthly Bonus Fund’s long-term returns compared to inflation:

The portfolio reacts favourably in a variety of market conditions:

For more information visit: www.sanlam.co.za