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21 September 2016

The Living Annuity Conundrum


21 September 2016


Dear Client


According to this article (click here) in The Independent on Saturday 17 September 2016, research by local and international companies have determined that a safe income level to draw is around 4% per annum.  The association of Savings and Investments SA (SISA) has determined safe withdrawal levels for different groups.  The average withdrawal rate is however, typically higher than the recommended levels around 6.4% according to SISA.


The CAR (cumulated average rate of return) of the three fund of funds we are managing came down to ± 12% and we therefore advise our clients not to draw more than 6% per annum, in order to provide for inflation.  In other words 12% minus 6% equals 6%.


Because of Nene gate and Brexit there is a possibility that our three fund of funds will not even grow with 12% for this year, which is not a problem for clients who have invested for the long term.  However, if you have invested for a period less than three years and you are drawing more than 6% per annum there is a possibility that you may dig into your capital and not make it back over such a short term.  The article from Peter Bruce (click here) which encourages to invest for the long term, is also applicable to private investment.


Friendly greetings


Andre Delport

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