The Citizen (Gauteng)

Income-paying investment­s

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Q. A Moneyweb reader asks:

I am semi-retired and earn an income of about R35 000 through properties. I have R700 000 in unit trusts. I need to draw additional income. Please advise where to invest the R700 000?

A. Sonia du Plessis, a certified financial planner at Brenthurst Wealth answers:

You can schedule it directly from the unit trust account. You can leave the R700 000 in unit trusts. You don’t have to move it to another investment account or product.

You might trigger costs by putting the funds in a new product and capital gains tax if you sell out of the current funds. A discretion­ary investment unit trust account caters for regular monthly withdrawal­s.

You must decide the safe amount to withdraw, especially if you don’t want to tap into capital. I would suggest between 4% and 5% of the capital amount.

Four would be safer and would give you R2 333 monthly.

Determine if your unit trust funds are a suitable investment to draw an income from.

You don’t want to withdraw regularly from an equity-only unit trust fund. When markets go down and you take income from a high-risk instrument, your money will have to grow much more to make up for the negative growth and the income taken out.

In these challengin­g economic times, it would make sense to take the regular withdrawal from a stable asset class.

A guideline is to put two to three years’ income in a money market unit trust or a low-risk income unit trust. Schedule the income from the low-risk fund.

After the three-year period, the money in that account will be depleted and you just top it up.

In the industry we call this the “bucket approach”: the income portion will be in a low-risk bucket. Evaluate which unit trusts you want to use in your medium and long-term buckets.

You say you are semi-retired: that, to a certain extent, puts you in a lower-risk category.

For your medium and longterm buckets, you will have to bring in some growth assets. It is good to have some offshore market exposure.

Your risk appetite will determine which unit trust funds will be selected. There is a range from low-risk to high-risk unit trust funds; the amount of local and offshore equity in the unit trust funds will determine in which risk category it falls.

Be careful not to put all your eggs in one basket.

In these challengin­g economic times, it would make sense to take the regular withdrawal from a stable asset class.

Sonia du Plessis, Brenthurst Wealth

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