In July the average prudential balanced portfolio returned 3.55% (June: 1.21%). Top performer is Nam Asset Management (4.92%); while Stanlib (2.51%) takes the bottom spot. For the 3 month period, EMH takes top spot, outperforming the ‘average’ by roughly 0.92%. On the other end of the scale Stanlib underperformed the ‘average’ by 1.10%.

Can you afford to be invested in the money market?

In last month’s Benchtest I tried to explain how difficult it is to get the timing right for switching to either more conservative, or to more aggressive portfolios and back. Take the last two months as a point in case. In June the average prudential balanced portfolio returned minus 1.2% for the month while the JSE Allshare index returned minus 3.6%. Had you taken this as your prompt to switch to the money market portfolio, you would have sacrificed July’s return of 3.5% of the average prudential balanced portfolio and 7% of the JSE Allshare index. Cash would have given you 0.7% for July.

Switching investments because of last month’s poor or good returns is clearly not the answer. One needs to have a goal and a strategy how to get there. Much like is implicit in a business’ vision, mission and philosophy. In terms of retirement investment, pension funds actually are structured around the implicit vision that a person should be able to replace his or her income at a rate of 2% of remuneration for each year of fund membership – referred to as income replacement ratio. Empirical evidence suggests that an income replacement ratio of 2% should support a reasonable life style in retirement at a reasonable cost. This replacement ratio is critically dependant on two factors, firstly the net contribution rate towards retirement by employee and employer and the investment returns earned over the working life. The following table illustrates the interdependency of these two factors.

Read part 6 of the Monthly Review of Portfolio Performance to 31 July 2017 to find out what our investment views are.