The South African investment landscape has a wide range of products and structures. This ensures that there’s something to appeal to everyone’s risk appetite, time horizon and financial goals. Unfortunately, all these options can make it an extremely confusing landscape to navigate. So let’s break it down, starting at the multi-asset fund family.

Multi-asset allocation funds

Just as the name says, a multi-asset fund invests in more than one asset class. If you invest in a multi-asset fund, your money would be invested in equities, property, bonds and cash. Regulation 28 requires that South African retirement funds are diversified investments. As such,  retirement funds in South Africa are multi-asset in nature.

The beauty of these funds is that they offer a simplified solution to risk management, as your hard-earned cash is invested across asset classes with each asset class carrying its own level of risk. So when one asset class takes a nosedive, the others can cushion the blow. This enables them to offer steady returns to investors over time.

Multi-asset funds come in different shapes and sizes, guided by limitations on how much can be invested in certain asset classes.

High-equity multi-asset fund

High-equity multi-asset funds are ideal for individuals with long-term investment goals (like retirement), as they invest a majority chunk of your money in equities, giving you much more bang for your buck. Why is that though?

The thing with equities is that it’s a volatile asset class. This makes them high-risk.

With equities, you are basically purchasing stocks and shares of a company. This environment is synonymous with continued fluctuations in demand and supply. For a (very simplified) example, if a company has been caught doing something it shouldn’t, investors are likely to drop their holdings like a hot potato and move on. As more shares are now available, they will become cheaper and your holdings will lose value. Events in the national and global economic environment also play a role in driving volatility.

The same goes for a company that’s on the cusp of stellar growth – everyone wants to get in, which drives up the share price.

However, in the long run, riding the risk wave of this asset class will definitely pay off as equities outperform other asset classes by a mile. Equities also have the ability to beat inflation. What a win!

Regulation 28 limits the exposure of retirement funds to higher risk assets, so high-equity multi-asset funds can invest a maximum of 75% of their funds in local and international equity, with the rest divvied between the remaining asset classes. Keep in mind that high-equity multi-asset retirement funds are limited to 45% offshore exposure across all asset classes.

Medium-equity and low-equity multi-asset funds

These are more conservative funds, edging into the less-risk zone. Because of this low-equity multi-asset funds are a good option for those nearing retirement or those already drawing income from their retirement investments.

Multi-asset funds within the medium-equity category are limited to 60% equity exposure, while low-equity funds are limited to 40% equity.

Flexible multi-asset funds

Towards the restriction-free end of the spectrum lie flexible multi-asset funds. True to its name, these funds are super flexible in how they invest your money. Although these funds are unconstrained, they are still balanced, i.e. they are still investing across different asset classes.

So what does ‘flexible’ mean in this context? For one, most flexible multi-asset funds aren’t Regulation 28 compliant. This means that they’re aren’t geographically limited to the maximum 45% offshore allocation. They’re also flexible in the size and sector of the companies they choose to invest in.

Saving for retirement is the biggest investment most of us will ever make. Sadly, it can also be very complicated. In this monthly blog, Carina Jooste responds to common retirement questions, ranging from which products are best suited to different circumstances to efficient tax treatments.