Pension planning: Why diversification is important

Saving for your retirement is one of the most important actions you can take to secure your financial future. While you may have a jump start on this, is your advisor, or investment, performing optimally?

Think internationally

According to Gavin Smith, head of Africa at deVere Acuma, investors are increasingly being encouraged to think internationally to navigate domestic market volatility.

“The overriding benefit of investing internationally is that it helps investors to avoid falling into the trap of having a ‘home bias’. It helps to create a properly diversified portfolio and there are potentially higher returns,” says Smith.

Still, there continues to be hesitation when it comes to global investments. Smith identifies the three biggest myths attached to investing internationally:

• There is always more risk involved
• It’s only for sophisticated investors
• It’s inherently more expensive

While it’s generally wise to engage the services of a financial adviser, should you decide to dabble in different portfolios yourself, Smith suggests the following. 

• Always remain strictly objective about investment decisions
• Keep some "rainy day" funds set aside

“It’s important to have funds that are ready to use if a positive trend appears or an opportunity presents itself,” he says.

Still not convinced that diversification is the way to go? 

“Diversification is arguably the best tool an investor has to mitigate risks and to take advantage of opportunities when they are presented,” Smith says.

“When drawing nearer to retirement, it’s all the more important to ensure a solid return. Diversification can help you to achieve this.”

International pensions have the added benefit of enabling access to potentially stronger foreign currencies, and the varying tax treatment of pensions globally.