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Help me to come up with questions for 2 FPs?

Discussion in 'Financial Planning' started by JP, 29th Jun, 2011.

  1. JP

    JP New Member

    19th Jan, 2008
    Sydney, NSW
    Hi All,

    I'm looking for some ideas/advice relating to an investment strategy
    for my mother's investments. We have a chunk of cash to invest and I'm
    dealing with two financial advisers who are offering divergent advice.
    I am hoping that some smart and more investment-savvy folks might offer
    some questions I could ask of the advisors to help me gauge who's
    advise sounds the soundest.

    My mother is elderly and living in South Africa. She has recently sold
    her house and moved in order to realize some of the capital tied up in
    her house so she can live off that money. She has raised about a
    decade's worth of living expenses by doing this (and this sets the
    investment horizon). In general out risk tolerance is pretty low.
    I was initially hoping to invest the money on her behalf myself, but
    after some research feel like I'm not confident enough and over time
    won't have enough time to stay on top of the South African market
    well enough to manage the investments well. Hence approaching
    investment advisors.

    My main question is about the amount of cash which should be held, and
    how the ratio of cash to equity should be allowed to vary over time,
    as my mother has to gradually liquidate assets in order to live off

    The two investment managers advised a split between cash, a managed
    fund and bonds. In summary we're looking to invest around 50% in
    equity, the balance in cash (marginally inflation-beating money market
    investments) and bonds. Some of the equity in the managed funds is
    "hedged" (i.e. it's shorted to protect against falls in the market, though I don't
    have all details to hand). The managed funds are well respected and
    suitably conservative for someone like my mother who will have to
    liquidate those funds over the next 10 years.

    (I was interested in an ETF (index tracking funds) as management fees
    are very low, but would only want a very small component in it as a
    pure equity investment and I'm not sure I'd want to do that in
    addition to using a managed fund).

    The main two main investment strategies offered to me are:

    (1) 50% "balanced" managed fund, 25% "defensive" managed fund, 25%
    cash. Where the two funds would also hold between 20-30% cash
    positions. The strategy being that she lives off the cash first, then
    the defensive investment, allowing the balanced investments to grow
    (and hopefully riding out any large market fluctuations) before she
    has to start selling them.

    (2) Invest 100% in a "balanced/defensive" managed fund that is
    tailored to my mother's risk. The selected fund would hold a
    significant proportion of cash and bonds. Any selling off would be out
    of that fund and thus maintain the asset class split as maintained by
    the fund manager. The motivation behind a 100% investment in the
    managed funds would be to have a mostly stable risk profile rather
    than one that varies over time (also ensuring, or at least hoping,
    that the funds are managed such that they lie on the efficient
    frontier -- something that the funds I looked at seem to be mostly

    The question is: while the first strategy initially struck me as the
    safer one, it does mean that as the cash is used up, the investment
    position becomes more risky over time, while my mother's risk exposure
    should actually be reduced. Futhermore it does not take as much
    advantage of a fund manager's skill to vary the asset mix (assuming of
    course that one believes fund managers are competent at anticipating
    the market at least as well as a bunch of chimps).

    For those that are interested, the funds under discussion are: BALANCED DEFENSIVE FUND.pdf CAPITAL PLUS FUND.pdf

    They are pretty well regarded in South Africa, and are not front-loaded (as far as I know).

    thanks all very much.
  2. Johny_come_lately

    Johny_come_lately Well-Known Member

    1st Jul, 2009
    SE Queensland
    Hi JP

    Planners fees add up. Why not google 'Asset Allocation' and build your own portfolio out of index funds or ETFs. Research defensive strategies and also annuities.

    How old is your mother. Is she likely to need medical procedures in the future?

    Remember, to watch inflation as well. Cash, Bond investments will incur tax.

    Good luck.

    Johny. :)