Without knowing the specifics about your time horizon until retirement, I would give the following generalised advice …
Investors need to decide what is more important to them: the absolute value of their investments or the income stream they generate and their long-term structure. In the past, retirees would generally use their retirement funds to purchase the most advantageous annuity from an insurance company or pension fund.
Today this is seldom the case, with research from National Treasury showing that annuity purchases have decreased to less than 40% of all compulsory retirement funds.
If your goal is to buy an annuity, then a large decrease in your capital value just before retirement would be catastrophic.
So if that is your intention, then your investment goal should be to generate compounding income with low capital volatility.
This might mean a mix of strategic income funds, property portfolios and low-risk, high-dividend equity strategies.
However, if your intention is to manage a portfolio of investments that you draw down on over the full length of retirement, then your time horizon and investment objectives change quite notably. These days, people are often retiring before the age of 60 and then living beyond 90.
This is likely to become increasingly common and represents an investment time horizon of more than 25 years post-retirement.
The challenge is that many retirees or imminent retirees worry about capital volatility in their investment portfolios.
However, without exposure to growth investments – and specifically equities – there is little chance a retirement portfolio will last the distance. A portfolio built too conservatively to protect against volatility is going to become the victim of inflation in the long run.
I’d suggest a 60/40 split of equity to property funds if the time horizon to retirement is five years or less. I would add an extra 10% of equities for every five additional years you are away from retirement. Thus, 10 years away: 70/30; 15 years away: 80/20 and so on.
It is also vital you consider costs. I would want to ensure that the total cost of investing, which includes advice, administration and asset management, does not exceed 1.5% per annum.