I have a small portfolio of rand-denominated offshore unit trusts – each yielding different returns. My question is, when making withdrawals should I draw from funds that produce lower or higher returns?
Generally, when your portfolio is initially constructed and then reviewed periodically, your investment advisor should understand your liquidity requirements.
Based on the information above, I will assume the lower-yielding returns are funds made up of mostly cash and bond instruments, it may have property and equities as well but a lower allocation.
The higher-yielding investment would probably be made up of equities, property, bonds and cash with almost the inverse allocation.
When we structure clients’ portfolios, we normally build portfolios based on the risk tolerance and time in the market, and we get a risk score that we will use as a baseline to allocate funds accordingly. However if your risk score is high, and you can take on a lot of risk, it doesn’t mean that we will just place funds that you will need in one to two years, for a car, holiday, wedding etc in high-risk structures with a lot of volatility. Those funds will be earmarked for those occasions and will be placed in lower risk/lower-yielding structures like bonds and cash with limited volatility.
Funds that are for a longer investment time horizon will be placed into medium to long term vehicles that will have a lot more volatility but also in theory higher returns.
To answer the question with the information at hand I would withdraw out of the lower-yielding or returning investment, based on the logic above. You should be in discussions with your investment advisors at least annually to discuss the liquidity requirements and your risk profile to make sure that they are properly aligned.
If you want you can email your fund statements to email@example.com and we send a link to our risk profile to see if your investments are aligned to your investment strategy.