The methodology used in the Rutherford portfolios has been tested in the USA and UK and is proven to significantly improve the risk-appropriate returns for investors. Combined with lifestyle financial advice, this is the surest path to financial success.

Our model portfolios are a careful blend of world-class South African and international funds, designed to achieve consistent inflation-beating returns with the lowest risk. This approach provides more stable returns through the strong diversification of manager styles and different asset classes. Our portfolios continue to prove that this approach works, delivering steady returns for our clients, well above the average.

The Rutherford model portfolios integrate the investment process and expert financial advice

The cornerstone of The Rutherford Way financial advice and investment process is your personalised Risk Profiler.

A common investment mistake is to pick a random mix of popular funds. The problem is that even if those are good funds, the selection is not expertly compiled, so the resulting risk of your combination of investments is probably not aligned to your personal risk profile. This can leave you with much greater risk than you realise. In addition, your selection of funds is unlikely to be optimised to achieve your targeted return rate.

When you have completed the Risk Profiler you will know both your personal risk score and the expected return that results from your specific risk profile. The appropriate Rutherford model portfolio will then be selected so as to achieve your expected return.

Taking the guesswork out of choosing funds and asset classes

Having determined your risk profile, the choice of the correct Rutherford model portfolio is almost automatic. Given a risk profile score of 4, the expected return rate (benchmark) for the level of risk taken by the investor is CPI + 4% and the choice of fund would be a Rutherford balanced portfolio.
 
Rutherford’s model portfolios blend world-class managers and funds together to create optimum risk-adjusted portfolio performance profiles, providing crucial benefits to our clients’ investments that are otherwise difficult to achieve.

One of the key benefits of a multi-manager fund is the extra level of diversification it can provide. Investors gain access to all the usual benefits of a managed fund, such as asset class diversification and manager expertise, with the added insights of multiple fund managers. This is important because rarely will all fund managers perform equally in all market conditions. Manager diversification offers investors optimal exposure to differing investment styles, which tends to provide a more consistent return experience through the market cycles.

The Rutherford Way – consistently improving investment returns

Simply put, the Rutherford multi-asset, multi-manager portfolios are exposed to numerous aspects of the market so that you don’t lose out when one management style or asset class performs better than another.

Your Rutherford portfolio is rebalanced regularly which has proven benefits for investors. The goal of rebalancing is to maintain your target asset allocation, and therefore keep your portfolio's risk characteristics in line with your risk profile. Rebalancing imposes a level of discipline in terms of selling a portion of your better performers, banking your profits and putting that money back into asset classes that are lagging in this cycle.

The importance of a benchmark

The Rutherford Way is a holistic investment approach whereby your risk profile score determines your risk-adjusted target return, which governs the choice of Rutherford portfolio appropriate for your investment.

If you have investments in a number of randomly selected funds, each with different risk profiles and targeted returns, it’s virtually impossible to work out the overall risk of your investments, and lengthy calculations are required to work out the aggregate return. In the absence of a defined investment target return (or benchmark), investors tend to move their money in and out of funds in the hope of gaining better returns – and because their timing is often bad, the result is long term poor performance. The Rutherford investment process is designed to avoid these pitfalls and to achieve superior returns for our clients.

Having a more focussed approach with clear investment targets will help you see the bigger picture and stick to the plan, whether it be a long term retirement plan or a final 5 years of intense investment into a pension.

In line with international trends – in the UK more than 80% of financial advisers use model portfolios as a core operating process in their business

The selection and blending of world-class funds into each Rutherford portfolio gives you the peace of mind that your chosen portfolio will achieve the targeted returns over the long term. This consistency means that you can trust the process – the Rutherford Way - and avoid common investor mistakes and biases. This will result in higher average returns and the achievement of your personal goals.

The government incentivises us to save for retirement in approved retirement funds by rewarding us with tax breaks. Historically the most you were allowed to deduct for income tax purposes was 15% of your income and although this has now been increased to 27,5%, which is a much better benchmark, many people still continue to save only 15% of their salaries or less towards their retirement fund.

How much income will I need in retirement?

When you retire, you generally need less income than during your working life. This is simply because some of your expenses like travelling to work fall away and children and education costs are a thing of the past. Depending on your retirement plans, you would typically need at least 60% and may be as much as 75% of your final pre-tax salary after retirement. Every few years it is important to take stock of your retirement savings to make sure you are on track with your plan to achieve 60%-70% of your final salary, rather than randomly saving thumb sucked percentages.

Pension Plan Disruptors

Even the best-laid plans, with the most disciplined savers, are not completely safe from disruptions. It is important to recognise that any interruptions or reductions in savings can have a dramatic impact on the number of assets we accumulate over a lifetime. We have to understand and address any hurdles that may get in the way of our savings or have already done so, in order for us to position ourselves to achieve long-term financial success.

Fewer Years in the Workplace

Have you ever taken time out of work to care for children or elderly relatives? Been retrenched and without employment for a while? Or maybe you have experienced a period of illness and been unable to work. Spending fewer years than the average in the workplace earning an income equates to fewer years of saving. Furthermore, working fewer years means less opportunity for potential salary growth, ultimately resulting in lower overall savings.

Lower wages lead to lost Compounding

Saving the same percentage but off a smaller Rand amount will leave big gaps in your pension plan. Maybe you have had several years earning a lower income or working part-time while caring for children or during a period of study. Saving less can diminish the benefits of compounding and lead to a much lower portfolio value over the long-term.

Living Longer and Greater Expenses in Retirement

With continuing advances in medical care, people are living longer and longer in retirement. While there are obvious benefits to living longer, it’s important to plan for the expenses that will come with these additional years. And often those later years are more expensive, as healthcare costs generally increase with age.

Rather Safe than Sorry

Even if you have been lucky enough not to face any of the savings challenges mentioned above but have been lulled into the false sense of security that investing 15% of salary will be enough for retirement, you should still do the numbers and make sure you have a viable retirement plan that will generate the income necessary for your desired retirement lifestyle. If you have experienced interruptions to your retirement savings or periods of no savings at all, you may need to urgently increase your savings and take advantage of compounding to give yourself the best possible chance of accumulating the assets you will need in the future.

A simple rule of thumb is that every R1 million you have at retirement can sustainably generate just over R4 000 per month income over your lifetime without eating into the capital. For assistance with calculating your retirement funding requirements and how to structure a personalised savings plan, speak to your accredited independent financial adviser or contact us at Rutherford at This email address is being protected from spambots. You need JavaScript enabled to view it.

South African interest rates are still high relative to our prevailing inflation rate. This is because the Reserve Bank has protected the Rand during the last few years of poor economic growth and high political volatility. Inflation is steadily decreasing and now the Reserve Bank has followed suit with a 0,25% cut, which is likely to be the start of much lower interest rates going forward. This is a worldwide trend.

Overextended periods of time, a cash portfolio after tax will not keep pace with inflation

For the past 5 years, South African investors holding cash have enjoyed satisfactory returns when compared to equities – and with far less volatility. However, if we look back a little further a very different picture emerges. The graph below, which goes back to 2000, shows that over the long-term cash substantially underperforms equities and bonds.

We have detailed financial information on South African and developed markets going all the way back to 1900. Since it is reasonable to assume that the future will be similar to the past, this provides us with valuable insights on what returns can be expected from different asset classes. Based on this data we can expect the cash to provide a return of inflation + 1%, whereas equities should generate inflation + 6% returns over the long term.

Holding cash must always be for very clear reasons, rather than a panic response to market uncertainty

In the modern economy, many investors have a 60-year time horizon – 30 years of saving before retirement and 30 years living off savings in retirement. Since cash earns interest which is taxable as income, it is easy to see that over extended periods a cash portfolio after tax will not keep pace with inflation. This means that holding cash must always be part of a well thought out financial plan.

If, for example, your objectives are capital preservation and high liquidity to cover short-term needs, then cash is an ideal investment. However, investing predominantly in cash as part of a long-term strategy is unlikely to deliver the required returns to grow your wealth.

When should you hold cash?

Sometimes it makes sense for investors to hold cash and lower risks. For instance:

• When making a large lump sum investment into a growth or balanced fund it is prudent to phase in the investment over time, particularly if the stock markets are expensive.
• If your life circumstances or your investment time horizon has changed and you need to lower your risk profile.
• When you start to draw a regular income from your investments a cash holding can lower volatility, which is essential in managing retirement savings.

The best strategy for most investors is to invest in a balanced fund which has multiple asset classes. This way the decisions of when to hold cash or equities are made for you by a team of professional fund managers.

If you aren’t happy with the growth on your investments, be assured that you are not alone! The majority of investors worldwide achieve poor returns on their investments and retirement savings.

Numerous studies show that the returns that investors have achieved over time are much lower than the returns of the average investment. This holds true in all countries, and over many decades. Studies in the USA have revealed that since the 1974 establishment of the personal Retirement Annuity (called a 401k account), the US stock market has grown at over 11% per annum. Over this same period, the average investor earned less than 4% per annum. Allowing for different returns from the asset classes typical of a balanced retirement portfolio, the average investor here received only half of the returns that they should have benefited from.

Investors receive only a fraction of the returns that they could

This sounds crazy, but the good news is that if we take the time to understand why this happens, we can approach investing in a more systematic manner, and then achieve consistently better investment returns.

Conventional financial theory suggests that investors are rational and seek to maximize their wealth through objective, non-emotional investment decisions. That makes sense. Nobody invests with the goal of losing money. However, the emotions of fear and greed, along with the herd instinct, can override rational thought. Behavioural finance is a relatively new field that seeks to combine psychological theory with conventional economics to provide explanations for why people make irrational financial decisions.

You don’t need to beat the market – just don’t let the market neat you

Successful investors tend to take a longer-term view, select reputable fund managers and avoid switching between managers to the fund of the moment. They stick with their manager and ride out the market cycles. But most investors don’t do that. Instead, they move their money in and out of their funds in the hope of gaining better returns – and because their timing is often bad, the result is long term poor performance.

Why do we do it?

This “behaviour gap” is driven by several well understood cognitive errors. Human nature shows that we have evolved to avoid pain and to pursue pleasure and security. It feels right to sell when everyone around us is scared (we tend to sell at the bottom of the market when it is cheaper) and to buy when everyone feels great (we often buy at the top of the market when it is expensive). It may feel right – but it is not rational. What many investors may not realise, is just how difficult it is to then make up that loss. For example, a 50% loss would require a 100% gain just to break even—a concept known as negative compounding.

Better investment returns for the average investor can be achieved by:

• Defining your own realistic and clear investment goals.
• Understanding your risk profile, and the potential returns and volatility that can reasonably be expected from that assumed risk.
• Investing in a strongly diversified fund with reputable asset managers who have good track records.
• Stay the course and adopt a long-term investment approach.

Markets are beyond our control, but knowing how we are going to behave in any market environment is essential to long-term investing success

Investing your own money is a very difficult thing to do. To invest properly, you need to emotionally detach yourself from your money which is not easy. How markets are going to behave is beyond our control, but knowing how we are going to behave in any market environment is essential to long term investing success. Partnering with a trusted Financial Advisor will enable you to remain objective and neutral.