Not using RA more beneficial in saving for retirement?

[Pegasus]

Let me put it this way. Very few people have the ability, willingness and need to invest more than 60% of their retirement pot in equities, let alone the 75% allowed by reg. 28.

Pretty much anyone under the age of 35 should be investing 100% in equities.

 

[Verde]

Pretty much anyone under the age of 35 should be investing 100% in equities.

That's what the sheeple always say during the frothy stage of a bull market. After the crash its a different story.
Your opinion is not shared by many finance economists.

This is great asset allocation advice:
http://www.bogleheads.org/wiki/Bogl...osophy#Never_bear_too_much_or_too_little_risk

See this asset allocation calculator:

http://www.bankrate.com/calculators/retirement/asset-allocation.aspx

 

[supersunbird]

Is cash of any use in SA with its below inflation returns?

Bonds can at least give inflation matching and even above returns.

 

[Gaz{M}]

Retirement is tricky, because it is so far in the future. None of us know what things will be like then, so it is very hard to say that this particular methodology is better than that one. Hindsight is always 20/20 in that we can make judgements on what happened, but we could never predict it at the time.

When saving for income during retirement, your goal should be "The best chance of having enough money to live on each year" and certainly not "maximising the potential to earn the most money". You could retire during a 7 year long market recovery and in that time you are still needing to draw money to live on while eroding your nestegg.

I would say we all need two strategies - 1. Save enough in a low risk, diversified portfolio to "live on". 2. Save outside of this in a portfolio that could potentially maximise your gains over time.

That way, when you retire, you at least have the bare minimum to survive on from "1". Your plan "2" will be all the extra potential gains that could buy you that Ferrari and a new head of hair.

 

[Pegasus]

That's what the sheeple always say during the frothy stage of a bull market. After the crash its a different story.

Your opinion is not shared by many finance economists.



This is great asset allocation advice:

http://www.bogleheads.org/wiki/Bogl...osophy#Never_bear_too_much_or_too_little_risk



See this asset allocation calculator:



http://www.bankrate.com/calculators/retirement/asset-allocation.aspx

The sheeple know that they can expect quite a few bull and bear markets over decades. Some mice who experience one bear and cower away end up losing out.

 

[Verde]

Its 25 years and still no bull for Mr. 100% Stocks Japan 1989.

https://finance.yahoo.com/echarts?s=^N225+Interactive

 

[Pegasus]

Its 25 years and still no bull for Mr. 100% Stocks Japan 1989.

https://finance.yahoo.com/echarts?s=^N225+Interactive

And?

Here's the JSE for you.

J203[CL]
1995 5598.729
1996 5995.822
1997 5465.600
1998 5015.719
1999 8357.193
2000 8164.293
2001 10456.474
2002 9277.220
2003 10387.220
2004 12656.860
2005 18096.540
2006 24915.200
2007 28957.970
2008 21509.200
2009 27666.450
2010 32118.890
2011 31985.670
2012 39250.240
2013 46256.226
2014 51349.114

And for fun Hong Kong

FHON[CL]
1986 2568.30
1987 2302.75
1988 2687.44
1989 2836.57
1990 3053.73
1991 4297.33
1992 5512.39
1993 11888.39
1994 8191.04
1995 10073.39
1996 13451.45
1997 10722.76
1998 10048.58
1999 16962.10
2000 15095.53
2001 11397.21
2002 9321.29
2003 12575.94
2004 14230.14
2005 14876.43
2006 19964.72
2007 27812.65
2008 14387.48
2009 21886.32
2010 23035.45
2011 18434.39
2012 22656.92
2013 23306.39
2014 24648.26

 

[supersunbird]

Its 25 years and still no bull for Mr. 100% Stocks Japan 1989.

https://finance.yahoo.com/echarts?s=^N225+Interactive

Well, that's not diversification...

 

[borga]

Its 25 years and still no bull for Mr. 100% Stocks Japan 1989.

https://finance.yahoo.com/echarts?s=^N225+Interactive

Why cherry pick the absolute worst outcome to attempt prove a point and ignoring the most probable outcome as a possibility? Look at all the other stock exchanges over the last 100 years how many others resulted in that bad outcome?

Risk and return go hand in hand. You cannot expect a decent return without any risk.

Risk do not equal return not does equal return result from equal risk.

Even the term "risk free" rate usually referring to government bonds or such is not risk free return, http://en.wikipedia.org/wiki/Sovereign_default#List_of_sovereign_debt_defaults_or_debt_restructuring

So if you want to protect your retirement funds from any possible negative event no matter how unlikely I doubt any financial instrument would be able to provide you with zero risk as any way you choose to save for retirement could result in negative growth or loss of capital.

Evaluating risk entails both magnitude and probability not just magnitude. Even the above timeline result could have been offset by diversifying with other stock exchanges, however even then there is still a probability (far smaller) that the above event could repeat on a global scale, however there is no guarantee that you would be able to avoid such an event by investing in other instruments such as bonds as they could be even worse off, you have no way of knowing.

Risk is also not just downside risk but also upside risk, what if you miss out on higher future returns due to being too conservative and your retirement funds end up being short due to future events such as higher than expected inflation?

 

[Verde]

Well, that's not diversification...

Precisely, where are the bonds?

 

[supersunbird]

Precisely, where are the bonds?

And the international equities...

There no way I would put all 75% of my RA into the JSE Top 40, even though many of them earn income from overseas. Just 50% goes there, 25% goes to international companies.

 

[Pegasus]

Precisely, where are the bonds?

http://www.allangray.co.za/individualInvestors.aspx#Performance
Only a 10 years history here for you, but compare the Equity fund to variations of Balanced funds.
Then go to other Mancos and have a look.

Even over 5 years at Mutual.
http://www.oldmutual.co.za/personal...owth/unit-trusts/funds/performance-table.aspx

Coronation over 10years.
http://www.coronation.com/compare-funds

Let me know what you notice.

 

[Verde]

http://www.allangray.co.za/individualInvestors.aspx#Performance
Only a 10 years history here for you, but compare the Equity fund to variations of Balanced funds.
Then go to other Mancos and have a look.

Even over 5 years at Mutual.
http://www.oldmutual.co.za/personal...owth/unit-trusts/funds/performance-table.aspx

Coronation over 10years.
http://www.coronation.com/compare-funds

Let me know what you notice.

The risk did not show up. Sometimes it does, sometimes it doesn't.
Problem is we don't know when. That's why it's called risk.
There is a statistically significant probability that equity risk can show up and hang around over a typical 35 year retirement funding accumulation period. Diversification can help significantly if that happens.
If that was not true, surely insurance companies would offer guaranteed retirement products offering at least a 5% real return. I mean the performances you quote over 10 years are 15%+ real returns.
If you find someone who guarantees a 5% real return for the next 10 years, please let me know. I will report them to the authorities for running a ponzi scheme.
When it comes to evaluating the distribution of possible outcomes for various asset allocations 10 years of data is mere noise.
You seem to suffer from recency bias.

 

[Pegasus]

The risk did not show up. Sometimes it does, sometimes it doesn't.
Problem is we don't know when. That's why it's called risk.
There is a statistically significant probability that equity risk can show up and hang around over a typical 35 year retirement funding accumulation period. Diversification can help significantly if that happens.
If that was not true, surely insurance companies would offer guaranteed retirement products offering at least a 5% real return. I mean the performances you quote over 10 years are 15%+ real returns.
If you find someone who guarantees a 5% real return for the next 10 years, please let me know. I will report them to the authorities for running a ponzi scheme.
When it comes to evaluating the distribution of possible outcomes for various asset allocations 10 years of data is mere noise.
You seem to suffer from recency bias.

I'm just trying to help you. Do whatever your ego wants.

 

[supersunbird]

The risk did not show up. Sometimes it does, sometimes it doesn't.
Problem is we don't know when. That's why it's called risk.
There is a statistically significant probability that equity risk can show up and hang around over a typical 35 year retirement funding accumulation period. Diversification can help significantly if that happens.
If that was not true, surely insurance companies would offer guaranteed retirement products offering at least a 5% real return. I mean the performances you quote over 10 years are 15%+ real returns.
If you find someone who guarantees a 5% real return for the next 10 years, please let me know. I will report them to the authorities for running a ponzi scheme.
When it comes to evaluating the distribution of possible outcomes for various asset allocations 10 years of data is mere noise.
You seem to suffer from recency bias.

Well, mostly because most of the "old" funds have only existed for 15 years and for some reason they make is difficult to find comparisons on a longer time frame.

 

[Pegasus]

Well, mostly because most of the "old" funds have only existed for 15 years and for some reason they make is difficult to find comparisons on a longer time frame.

I'm not at work, but I can find 20 year + returns that show the same thing.

But anyways.... He's been proven wrong and may as well leave it there.

 

[Verde]

I'm not at work, but I can find 20 year + returns that show the same thing.

But anyways.... He's been proven wrong and may as well leave it there.

If its long term data your'e after:

Link to Robert Shiller's database of US capital market returns since 1871:
http://www.econ.yale.edu/~shiller/data/ie_data.xls

This is a great resource - The global investment returns yearbook 2014. Based on the research of Dimson, Marsh and Staunton.
It shows capital market returns for more than 20 countries over the last 100+ years.
http://gallery.mailchimp.com/6750fa...s/global_investment_returns_yearbook_2014.pdf

This is a great report, and anyone interested in broadening their knowledge of economics, specifically finance should read it.
An idiot would browse through the tables and graphs, and conclude that stocks always beat bonds and cash, so why invest in anything else.
But if you want to be educated you will read through the whole thing and learn that investing is not a maximisation problem, but rather an optimisation problem and that there are good reasons why 75% of global money sloshing around capital markets is invested in bonds.
You should also spend a lot more time focusing on the reports on Austria, Italy, Russia than on South Africa, Australia, USA. - understanding risk is much more valuable than understanding return when it comes to investment management. You can manage risk, returns are beyond your control.

 

[Verde]

When saving for income during retirement, your goal should be "The best chance of having enough money to live on each year" and certainly not "maximising the potential to earn the most money".

Well said.

 

[semaphore]

So what is the conclusion, which fund would be a good investment? I want to dump about 1K/2K a month in them and just let it collect. I've already opened a coronation top 20 account this month. Any other suggestions ? (i'm not an economics major).

 

[Nerfherder]

So what is the conclusion, which fund would be a good investment? I want to dump about 1K/2K a month in them and just let it collect. I've already opened a coronation top 20 account this month. Any other suggestions ? (i'm not an economics major).

Both... spread your eggs.

RA is only tax effective up to a certain point, if you have more spare cash then put that in to something else.