The role of a securities portfolio in your holistic retirement plan

Personalised financial planning is essential because everyone’s retirement goals, financial situations and risk tolerances are different. Whether you’re at the beginning of your career or nearing retirement, your plan should be tailored to fit your unique circumstances.

As part of defining your holistic retirement plan, you need to consider the role of a share portfolio in achieving your retirement outcomes, as shares continue to be the single asset class that beats inflation over the long term.

Shelby MC Davis is quoted as saying, “Invest for the long haul. Don’t get too greedy and don’t get too scared.” When investing in shares, this quote is key to achieving your desired financial outcomes in the context of your holistic retirement plan. Let’s consider some important points that can guide you in ensuring you invest for the long haul.

Risk Tolerance

When investing in shares, an investor needs to understand the concept of risk – particularly in relation to market movements – and, if investing offshore, rand strength and weakness. The savvy investor understands these risks and looks to capitalise on them on a regular basis.

An investor who remains committed and disciplined when investing understands that market movements are a natural part of investing. There is no optimal entry level, but those investors who remain in the market and continue to invest locally and offshore stand to benefit from being invested for the long term. Then market and currency risk simply become noise.

Portfolio Construction

When deciding how to effectively construct a share portfolio that will deliver sufficient returns to provide a sustainable income to cover living expenses, medical expenditure, and lifestyle needs, an investor needs to ensure that their portfolio is diversified:

• locally across different sectors to minimise the volatility of the portfolio when considering market movements,
• across asset classes, as portfolios need to have exposure to shares, cash, unit trusts and bonds to ensure they benefit from having exposure to all asset classes, and
• geographically so that they are relatively hedged when considering rand weakness.

The retirement industry is well aware of the risks associated with investing and, in particular, the need for investors’ retirement funding to be able to provide for the long term. Regulation 28 of the Pension Funds Act has been promulgated to address this risk.

What is Regulation 28?

Regulation 28, issued under the Pension Funds Act, aims to protect retirement fund members’ savings by limiting the extent to which retirement funds may invest in particular assets or asset classes. It prevents excessive concentration risk (i.e. ‘not putting all your eggs in one basket’) and ensures that members of retirement funds invest in different assets or types of assets to avoid unnecessary investment risks.

Regulation 28 applies to all retirement funds, including retirement annuities, pension funds, provident funds and preservation funds. Regulation 28 limits include that retirement fund members can only invest:

• a maximum of 75% of their retirement savings in shares,
• a maximum of 25% in property, and
• a maximum of 45% in international assets.

You can ask your financial adviser for more detail about the limits that apply. Compliance with these guidelines is closely monitored by insurers that are Regulation 28 compliant service providers, as they are required to report on this compliance on a regular basis.

Conclusion

Investors who understand the importance of achieving real returns (after discounting the impact of inflation) know that shares continue to be the asset class capable of delivering these returns over the long term.

When considering Regulation 28 – an industrywide standard for delivering retirement-appropriate returns – shares remain the key asset class (75% allocation) to deliver real returns as part of a holistic retirement plan. Speak to a financial adviser if you believe your retirement plan is at risk of not providing a sustainable income to cover your financial needs in your retirement years.

Frequently Asked Questions

Why is a securities portfolio important in retirement planning?

Shares outperform inflation over time, ensuring sustainable income to cover living expenses, medical costs, and lifestyle needs in retirement.

What is Regulation 28, and how does it affect investments?

Regulation 28 limits retirement fund investments to reduce risk, capping shares at 75%, property at 25%, and international assets at 45%.

How should I diversify my share portfolio?

Diversify across sectors, asset classes (e.g., shares, cash, bonds), and geographies to balance risk and maximise long-term growth.

Why is risk tolerance important in investing?

Understanding risk tolerance helps you stay invested through market fluctuations, capitalising on long-term growth opportunities.

How can a financial adviser help?

A financial adviser tailors your plan, ensures Regulation 28 compliance, and builds a diversified portfolio for sustainable retirement income.