Investments Explained

Types of investment

There are different types of investments available to retirement funds. A portfolio is a combination of different investment types. The more shares in the portfolio, the higher the investment risk of the portfolio.

Shares	When you buy shares in a company, you are buying a small part of the company and will share in any profits declared in the form of dividends. This investment type has a high risk over the short term, due to changes in the stock market, and in some years, you can have negative returns when share prices fall. But it also has the highest potential for good returns over the long term.
Bonds	Bonds are instruments with a promise to repay the capital amount plus interest at a specified date in the future. A bond is therefore an IOU issued by the government, by semi-government institutions and by some large companies. Bonds have a lower risk profile than shares (but can still produce negative returns over the short-term), but the expected long-term returns are also lower.
Property	Property investments are generally investments in large corporate office parks or industrial properties where the Fund earns the rental income. Property investments are not very liquid (it is difficult to sell them at short notice) and are therefore not used for retirement funds on a regular basis. Retirement funds normally access property through shares in a property company.
Cash	Cash is your safest investment. You cannot lose any capital, but over the long term, the lower expected returns might not beat inflation by a big enough percentage (or at all in times of high inflation).

Members have different needs and requirements when it comes to investments and the risks they can accept. Each portfolio has its own risk profile and you should choose the portfolio with a risk profile that most closely matches yours.

The Board of Trustees is aware that most members are not investment experts. They understand that a number of members may not have knowledge about investments. They might not feel comfortable when choosing a portfolio. The Life Stage portfolio will save members this difficult decision by investing for them, according to their years to retirement (investment horizon).

The amount of risk you can readily accept depends on the following:

• Your number of years to retirement

• Your appetite for risk (how comfortable you are with risk)

• Other investments outside of the Funds

• Your number of dependants at retirement

The closer you are to retirement, the safer your investment should be. If you choose the Life Stage Model, your investments will be transferred in phases into the next, safer portfolio when you reach the next age category in the Life Stage Model. If you select the Life Stage Model option, 100% of your retirement savings and your future contributions will be invested in this portfolio, according to your current age in years.

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The Municipal Gratuity Fund Contact Details:
Tel: 011 450 1224

Enquiries
Please send emails to:
Hester Van Rensburg hester.vanrensburg@mgfund.co.za
Lauren Smith lauren.smith@mgfund.co.za

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