IF you're looking for long-term, inflation-beating returns without all the volatility of market fluctuations, you should consider investing your money in smoothed funds.
By investing in smoothed funds that hold a balanced portfolio of assets, you not only get exposure to the growth that equities provide but also minimise the impact of market fluctuations.
Equity markets (company shares) generally achieve higher long-term returns than most of the other asset classes but with inevitable market fluctuations.
In a smoothed fund, the manager holds back some of the investment growth during times of strong market performance and allocates additional growth during a time of poor market performance, thus smoothing market extremes. This smoothing mechanism helps investors to enjoy long-term inflation-beating growth while being protected from the short-term ups and downs of the markets.
Old Mutual is celebrating a major milestone. Even in these turbulent times, we are still delivering positive returns for more than a million smoothed fund investors, as we have done consistently for over 25 years.
Some smoothed funds may offer contractual guarantees. While investment into a market-related fund without any guarantees has the potential to earn a better long-term return (largely due to the cost of guarantees), the price of a higher return comes with more risk and volatility.
The smoothed funds therefore provide investors with a combination of balanced portfolio growth and peace of mind that adds long-term customer value.
Of course there are also other funds that aim to deliver investment returns with lower volatility. However the difference is that these funds typically do so by investing more in cash - which reduces volatility but with a cost of lower returns. It is a well-known fact that cash does not generally provide inflation-beating returns over the longer-term.
The biggest contributor to consumers not achieving their investment goals is the influence of emotions on their decision-making. Smoothed funds, together with an advice partner, help to overcome the influence of emotions and help consumers to focus on their long-term objectives by reducing the volatility normally associated with investment in growth assets such as equities and property.
Even if you reach retirement age when markets are down, a smoothed fund investment offers you some protection when exiting the fund that is unavailable to investors in directly market-linked funds.
"Old Mutual's Smoothed Bonus Fund has delivered a boost of up to 7,2percent to investors' policy values in 2009. It is long-term growth above inflation that creates wealth.
"With returns beating inflation by over five percent per annum over the past 25 years, there can be little doubt that this fund has helped many investors in building their investment value without incurring undue risk in the process," concludes Levin.
For more information on how to invest in smoothed funds, visit www.oldmutual.co.za/smoothedfunds or speak to your adviser.
lThe writer is executive general manager of product solutions at Old Mutual.