CHANGING YOUR INVESTMENT OPTION
Get expert financial advice before you make these important investment decisions
AUTOMATIC LIFE STAGE is the Fund’s default investment option and is suitable for most members of the Fund. It is an appropriate long-term investment strategy that invests your retirement savings according to your age. It is for members who do not wish to be actively involved in managing their own investments.
OWN INVESTMENT CHOICE allows you to decide in which portfolios you want to invest. Here you are entirely responsible for any switches and movements. If choosing this option, we assume that you have consulted a qualified financial adviser to confirm the appropriateness of your choice.
If you have any questions, contact the Alexforbes Individual Advice Centre (IAC):
Call 0860 100 444 or email iac@alexforbes.com
The do's and don'ts of investment switching
Principles of investing
When you buy a property, you often hear people say “location, location, location”. When you invest, you often hear “diversify, diversify, diversify”. But why?
Here we will touch on a few important investment principles and concepts. How do these affect your ability to meet your retirement goals, and how can diversification help you navigate the ups and downs of financial markets.
What is inflation? Inflation occurs when there is a broad increase in the price of goods and services, not just individual items. It means you can buy less for R100 today than you could last year. Inflation reduces the purchasing power of your money over time and is probably the biggest single risk you face when saving for retirement.
Outperform inflation
Outperforming inflation is key to your investment’s success and meeting your goals. This ensures that your savings keep up with the cost of living.
So how does one beat inflation? You need to invest in growth-orientated asset classes to achieve inflation-beating returns in the long term.
Shares, also known as equities, are where you buy a share or part of a company. Equities have in the past, outperformed inflation over the long term. However, the short-term performance can quickly rise and fall depending on prevailing market conditions.
Diversify your investments
Retirement fund regulations require your savings to be diversified. This means that your savings are invested in different types of asset classes, and the amount in each asset class is limited to protect your savings.
A diversified, balanced investment portfolio combines:
- growth asset classes (equities and property) and
- defensive asset classes (bonds and cash).
Ignore market volatility
Volatility is the upward and downward movement in the financial markets and how drastically they can swing up and down. Your retirement savings are linked to the performance of those markets as that is where they are invested. Markets that perform well grow your savings, and markets that perform poorly reduce the value of your savings.
Many people feel anxious about market swings and the effect on their investments. Remember that market volatility is not unexpected and does not require you to make any investment changes. History shows that markets almost always recover, and they give high investment returns once they do so.
Stay invested
And this brings us to reacting on your fears of losing money. Switching out of your investment or cashing in your savings when markets have under-performed is not recommended.
- Information about the past shows that people who took their money out of the market or switched out of their long-term investment strategy after a market fall were worse off than those who kept their money invested and stayed in the market. Sometimes doing nothing is doing a lot.
- Because we don’t know when markets will recover, it is likely that if you switched out or cashed in, you would not participate in a subsequent market recovery and, therefore will miss out on the performance growth.
This demonstrates the importance of staying invested and not trying to time the market, especially during heightened uncertainty.
Last month’s winner is not necessarily today’s winner
- Basing investment decisions on past performance is a common mistake many people make.
- The search for the best asset manager, asset class or money management style consumes a lot of time as many people compare their investments against that of their peers.
- Investors’ behavioural biases often result in switching to yesterday’s top performers, in the hope they will be tomorrow’s top performers.
- After all, no one wants to have a little while others have it all. And just as you think you have ‘it’, the market changes and today’s top performers become tomorrow’s runners-up or even losers.
Spreading investments across different asset managers, asset classes and investment styles means that your investments can be better prepared to take advantage of growth opportunities when markets perform well while also protecting your savings when markets fall.
This is because it is unlikely that all investments will move in the same direction, at the same rate and at the same time in response to a specific market event.
- As one investment begins to fall out of favour, its poor performance is offset by the good performance of other investments in your portfolio.
- The disclaimer “past investment performance is no guarantee of future investment performance” is there for a reason.
- Do not rely on recent market experiences to inform your long-term decisions.
- Focus on your long-term investment strategy and allow your investment the time to deliver on its objectives.
Diversify, diversify, diversify
If the markets were to play havoc and inflation soared or the best performing portfolios changed too frequently, having a diversified portfolio will help end the cycle of disappointing investment outcomes as well as the associated anxiety.
- Spreading your investments helps you to absorb the ups and downs of events that affect the financial markets.
- This in turn lessens the negative impact on your savings and investments.
- Not only does diversification help provide you with more comfort and certainty in reaching your goal, but it can also help you experience smoother and better investment returns.
- These then compound into a better investment performance over the long term.
The Woolworths Group Retirement Fund’s investment approach
We follow a default investment approach that changes the underlying investment portfolios to lower-risk portfolios as members near their normal retirement age.
- The Fund’s investment portfolios are managed by multiple asset managers across different markets, asset classes and money management styles.
- This constructs well-diversified fund portfolios that are more likely to deliver targeted returns.
- This layer of diversification and risk management helps to deliver stable and reliable returns in the long term.
The Fund uses professional investment advisors to assist in compiling the Fund’s investment portfolios. We bring the best asset managers together and balancing their strengths to find the right blend that can minimise risk.
Speak to an expert financial adviser
The purpose of good advice is to help you in making decisions that are best for your particular needs. If you want to make investment changes, we recommend that you speak to a qualified and experienced financial adviser. They will advise you on an investment strategy that is best to achieve your financial goals. They will also help you stick to your strategy when times get tough.
One of the benefits of being with the Woolworths Group Retirement Fund is that you have access to advice and assistance from the knowledgeable and experienced financial advisers at Alexforbes. If you would like to review your situation or discuss the options available, please contact us.
For FREE financial advice, contact the Alexforbes Individual Advice Centre (IAC) at 0860 100 444 or email them at iac@alexforbes.com.