Recently investments in the money market provided great returns and the question was often raised as to whether investments should not be switched from other portfolios such as equities, bonds and property into the money market?

Such a strategy also raises the inevitable timing quandary as to when the next switch should be made i.e out of the money market funds back into equities. It is generally accepted that trying to time the market in this way cannot be a sustainable investment strategy.

Financial Planners will tell you that cash has only out performed SA Equity and Bonds once in the period 2001 to 2016 while during this period average returns for equities was in excess of 19%, while Bonds returns were 10.35% whereas cash performed at 8.12% during the same period.

There are, of course, occasions when “Cash is King” and of course cash investments will always have a place in investment portfolios in general and retirement portfolio’s in specific.

Every financial planner worth his salt will recommend that you should strive at all times to hold an amount in cash equal to a minimum of between three to five times your regular monthly expenditure as an emergency fund. Ideally this money will be held in a place where it is readily accessible when the fridge needs repairs or the dog needs to be attended to by the local veterinarian without you having to go into overdraft or use a credit card charging high interest rates.

If you look at how much cash or cash instruments are held as a portion of unit trusts and retirement fund portfolio you will be convinced that cash should always be part of your investments.

Unless you have an enormous amount of cash, far more than you will ever be able to deplete during your lifetime (you will know that if you have undergone a lifestyle planning audit using the services of a professional financial planner), holding too much cash for too long a time can be harmful to investment growth and to the sustainability of your retirement income. Even in that case you might be subject to a lot more income tax liability than you would be comfortable contributing to the coffers of the SA Revenue Services. Weighing up the inflation rate, your income tax rate against the interest rate over a protracted period of time will inevitably prove that cash cannot provide a sustainable real return on your hard-earned funds.

So what is the perfect cocktail of cash equity and property (asset allocation) for your own financial management and retirement planning needs?

The answer to that question can never ever be a general one size fits all solution as everyone needs an asset allocation that will be inflation beating appropriate and suitable to their individual needs after pondering questions such as:

• Monthly income requirements (pre= and post retirement)

• Timing of and the amount of cash lump sums that may be needed for normal financial occurrences such as university education, car purchases, holidays, weddings

• Available lumpsums and regular cashflow to be invested

• Your personal financial risk tolerance

So, for example, assuming that all of the above have been taken into account by their financial planner and that the retirement plan Mr and Mrs Joe Bloggs requires their investments to perform at a real return of 8% per annum (that is 14% per annum, assuming inflation is 6% and other costs are 2% per annum). This is purely a mathematical calculation!  Clearly then, being stuck in cash earning say 7% or 8% per annum, will be detrimental to their financial plan.

Should they wish to keep their investments in cash they will need to re-visit their financial goals and retirement objectives accordingly as a return of 14% per annum requires a portfolio that consists primarily of equities (“shares”). A typical asset allocation for a fund[1] to provide such a return will consist of about 5% in cash, the rest of the investment funds will be allocated to growth assets both locally and offshore. If they are conservative by nature Mr and Mrs Bloggs’s psychological prowess will be tested as on occasion and they should expect their investment values to vary substantially (twelve months ending 31 October 2017 the fund returned +14.6%), with possible losses in value of -35%!

Requesting a financial planning professional to provide you with a proper analysis of your particular financial needs and objectives will also provide you with peace of mind as to whether your retirement investments are performing optimally or whether your money is underperforming inflation because there is an excessive amount stuck in cash.