Friday May 20, 2022

Earn special funds from the company

Retirement benefits help people to create a sufficient financial reserve at the time of retirement, when they will not be able to rely on the court. Unfortunately, the income of pension funds is relatively low, despite some tax benefits. However, there is a suitable alternative that the manager should not forget.

Not that we would like to criticize pension funds pointlessly, but the fact is that they are suitable only from the point of view of the state contribution and tax levies are not of interest to regulators and investors. One of the most obvious inconveniences is the conservatism of their investment strategies. Evaluated, which promise, is certainly not mature. Although they are innocent in this, their inputs are simply insufficient. He gave a big inconvenience is the disrespect for the risk profile and investment horizon of client pension funds. Both a 30-year-old hunter and a 55-year-old retiree are forced to put their money into the same, very conservative product.

This situation (which is not only in NS) eventually led to the creation of the so-called Life cycle fund (LC funds). Thanks to their strategy, these funds can mean an interesting alternative to the first pension connection for many investors. The basis of the LC fund’s strategy is the gradual change of the portfolio over time and the change of its risk exchange according to the amount of time remaining until the completion of the investment (rebalancing and reallocation of the portfolio).

In essence, it is the active first of the portfolio, when the portfolio manager of the fund or a given product during the investment changes the portfolio in such a way that at the end of the investment horizon most of the funds are invested in conservative instruments. At the end of the investment, when it is possible to go for many years to the end, again, the manager will first turn the means into action and other risky tools.

LC funds can be especially for inexperienced investors who have in mind to invest in their income collateral, not the maximum that pays to invest in pension funds (18,000 ron). As LC funds are designed as open-ended funds, investors are also guaranteed very good liquidity in the event that they will need funds at any time during the investment.

Advantages and disadvantages Life cycle fund
Vhody Disadvantages
You returns, not in pension funds Deposits in funds are not insured
Diversification into more td assets Funds seldom reflect different investor risk tolerances
Regular portfolio rebalancing Retirement may not coincide with the fund’s investment horizon
Automatic reallocation

Life cycle funds have existed in the world since the nineties, in our country, however, this possibility of saving money only gets to the attention of investors, and very slowly. At present, investors have a choice of products from the company ISS, Pioneer, P InvestConseq.

In this article we will look at the current offer, with an arrest from the saw Investin company esk spoitelny (the other two products we described in tomto lnku). It offers in the offer (so far) three LC funds, referred to as target-date funds, which are exchanged for a certain date when the investment is expected to end, or the investor’s retirement. This date also appears in the names of the funds. So funds are available ISSlife cycle fund 2020, 2025, 2030 and 2040.

The diversified portfolio of the fund should include equity instruments (especially ETFs), bonds, commodity indices and, last but not least, money market instruments. Active management reports both in variability according to stock, bond, money market and commodity instruments over time, but also the allocation of assets to individual sectors and regions, duration and currency risk. Investors pay an entry fee of 1.2 2.4% according to the investment and must meet the management fee, which is 2% for all funds. The fund is primarily intended for investors who want to invest regularly, as evidenced by a minimum investment of 100 K.

Since all the funds offered have their expected investment horizon for a long time (at least 10 years), you will look in vain for money market instruments in their portfolios. The 2020 most conservative fund currently invests 55% in equities, 40% in bonds, and 5% in commodities. Who is about to retire in 2025, has to deal with a portfolio where shares will represent 65%, bonds 30% and commodities 5% of the fund’s assets.

In the case of the fund marked 2030, shares represent three quarters of the portfolio, 15% in bonds and 10% in commodities. The fund for investors, fulfilling the completed investment in 2040, did not work, it invests a total of 85% of its funds in the event. Only 5% remained for bonds and the remaining 10% is invested in komoditch. At first glance, the risk is high, but at the mentioned investment horizons, the ratios are quite interesting. Conservative investors may have trouble biting 85% of the stock in their portfolios, but those who are struggling have not succeeded. Over time, of course, the composition of the portfolio will change so that in recent years, bonds and money market instruments have accounted for around 90%.

The advantage of the ISS product in comparison with the products of other companies are the fees and the choice of the product (commodity index, ETF), which is not limited to funds managed and sold by the investment company, which will ensure better diversification. The downside was that I had to choose a product that has borders closed relatively far apart (when the retirement is being met in 2035, the investor is out for five years).

Basic properties Life cycle product offered by us
Entry fee for the longest product Manaer. charge Poet product Minimum regular payment
Conseq 3-5 % additional fee 0.5% 3 portfolios 1 000 K
P Invest 0-4 % 1-2,15 % 5 fz 500 K
ISS 1,2-2,4 % 2% 4 funds 100 K
Pioneer 2,75-3,5 % according to the fund in the portfolio 7 lines 500 K

Everything is limited
One of the inconveniences that can significantly reduce the size of the LC fund is the first risk tolerance for each investor. In short, someone bothers me, emv 85% of it in the portfolio, even though the recommended investment horizon of the product is longer than, for example, 20 years.

There are many investors who may not be comfortable with the products, because they cannot influence the composition of the portfolio themselves and are happy to choose their own path. Own selection of dynamic and conservative instruments, regional and exchange sectors, as well as rebalancing portfolios, they can according to their own rules, which gives them enough freedom. The conservative component in such a portfolio can be formed by the pension supplement itself, and LC funds are therefore not needed.

To do this, we need enough time, information and opportunities to be able to engage in independent investment in the capital markets. Then we must go to the need to fully comply with the rebalancing portfolio (which is, despite its apparent simplicity, one of the biggest problems an inexperienced investor) and the related avoidance of mistakes such as the time market (patience and a cool head in the decline ), which has nothing to look for in a long-term investment.

Those who do not have enough time, or do not have enough time, or do not dare to invest independently, can then seriously think about life cycle funds, which belong to the portfolio. It is not possible to rely only on pension funds and state aid today.

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