The mistake many investors make is to try and spread their investments across too many funds due to the fear of missing out on performance.

Levy writes: I have saved R190 000 and intend investing R20 000 in the Satrix MSCI World Equity index feeder fund; R20 000 in the Satrix Top 40 index fund and R10 000 in Satrix Balanced index fund for 5 to 10 years. I would also like to know what funds to invest in for income. I would also like to know which portfolio would be ideal for building up a dividend income.

Maya replies: It looks like you are diversifying across too many funds and this will lead to increased costs and admin. One offshore fund and one local fund should be sufficient so you need to choose between Satrix Balanced and Satrix Top 40.

The Satrix Balanced fund will have exposure to bonds, cash and property while the Top 40 would only have exposure to shares, specifically the 40 largest South African companies.

Technically the Satrix Top 40 should outperform the Satrix Balanced fund over 10 years as equities are growth assets and outperform cash and bonds over time; however, in the shorter term, you will experience more volatility (price movements) in the Satrix Top 40. If high volatility and especially short-term losses would make you panic and disinvest, then rather opt for the Balanced Fund which would give you a smoother return.

If you are building up the portfolio to generate an income in ten years’ time then you would consider a fund like the Satrix Divi which invests in funds paying a higher dividend yield.