Money … Insight from Coronation on how investors near or in retirement can protect themselves through the treacherous times that lie ahead.
T
IS YOUR RETIREMENT PORTFOLIO INFLATION-PROOF?
he environment facing
domestic growth assets, this has
will effectively be taxed through
long-term investors
meant that in the five years to end
negative real interest rates.
is treacherous. We
May 2020, cash or near-cash funds
are in uncharted waters for
(lower risk income and money
our generation.
market funds) have outperformed
WHAT ARE RETIRED INVESTORS TO DO?
the average South African balanced
Now more than ever, inflation
At the same time, we are witness to an unprecedented monetary experiment, coupled with a relentless
fund, as well as the average South African equity fund. The response from
protection should be a priority when constructing your long-term investment portfolio, meaning
increase in indebtedness
investors was to de-risk
that real assets should form the
around the world. The bill
portfolios by switching
cornerstone thereof. Real assets
to this experiment will
from long-term funds
consist of select growth assets, such
have to be paid back at
with more growth assets
as equities and property (that have
some point. In the absence
into short-term funds with
pricing power and that can grow
only fixed-interest assets as
earnings at or above inflation), or
of extraordinary growth, taxes and financial repression (in the form of higher prices and
they settled for the certainty of achieving reasonable real
lower interest rates) will be the
returns without having exposure to
key solutions.
more volatile assets. This strategy
As a retiree, the threat of an
turned out to work thus far.
increase in your inflation rate (off
traditional inflation-hedged asset classes, such as inflation-linked bonds and certain precious metals. Practically, this requires retirees to invest in a fund that has the correct mandate and allows the fund manager to diversify
with a low expected return from
TIME TO RECALIBRATE EXPECTATIONS
cash, should be enough reason to
However, since the start of
combination of real assets. At
revisit your investment portfolio
2020, the South African Reserve
Coronation, we deliberately
to ensure you have sufficient
Bank has cut the repo rate by a
construct robust balanced portfolios
protection against these risks.
cumulative 275 basis points. This
that incorporate a wide variety of
a historically low base), combined
exposure into the most appropriate
was to provide relief to an already
asset classes in order to achieve
CASH OR NEAR-CASH FUNDS HAVE BEEN THE DARLING OVER THE LAST FEW YEARS
struggling economy, exacerbated
inflation-beating returns over the
by the lockdowns imposed due
long term. The Coronation Balanced
to the COVID-19 pandemic. It
Defensive and Capital Plus funds
In the recent past, South Africans
has been at the expense of cash
are our flagship multi-asset funds
were in the fortunate position of
investors. When adjusting for
that are managed specifically with
saving in a market where cash and
tax on interest, investors in cash
the retiree in mind.
fixed income assets provided yields
can expect to earn net returns
in excess of inflation – quite unique
below the current inflation rate.
To find out more about the Coronation
in a global context. Together with
This can also be viewed as a form
Balanced Defensive and Capital Plus
underwhelming returns from
of financial repression when
funds, visit www.coronation.com or
considering how long savers
speak to your financial adviser.
20
SILVER DIGEST // WINTER 2020
