RANDS AND SENSE:
By Khwezi Jackson
Your early working years can be hectic, with long days spent navigating a fast-changing world, and life partners, perhaps even a young family, placing multiple demands on you. How in the world are you supposed to be planning for the long-term, choosing an investment portfolio, selecting a retirement provider, and so on?
Well, from one over-stretched worker to another, stop panicking and listen up. Planning for a dignified retirement is simpler than you think.
It used to be the norm for companies to provide pension funds for their employees. It was also usually compulsory for employees to join the employer’s fund. These days, fewer companies offer employees this “perk”, so the responsibility of saving for retirement tends to fall on the individual. But with a huge industry offering thousands of retirement savings options, how can the average South African know where to start?
The complexity of what is available is one of the reasons so few South Africans get around to even taking the first step to ensure a dignified retirement. It’s also why, according to National Treasury, only 6% of South Africans are on track to retire comfortably.
The average citizen already has too much on their plate to try to understand the intricacies of the investment world, but it’s essential we all do some basic retirement planning. The good news is that setting yourself up for a decent old age is not as complicated as many of the other things you’ve already conquered, especially if you start saving early.
Here are seven things to keep in mind as you dip your toe into investing for your retirement:
1. Fees are the single most reliable predictor of your investment’s performance and, therefore, of retirement-saving success. Make sure you keep yours low. Ask for the effective annual cost report and if you’re paying more than 1.2%, including VAT, you may want to look at other options.
2. Stay the course. That means do not cash out your savings. People often cash out their savings when they change jobs, thinking they will make it up later. The hard truth is that you probably won’t. Even if you do contribute the amount you cashed out, you’ll never get back the time those savings had to grow.
3. Trust can be misplaced. Just because a company has been around for decades and is well-known does not mean it’s the best place to invest your hard-earned cash. Choose a fund manager that will give you the best chance of a great outcome rather than because it has big offices around the country, sponsors major sporting events or runs impressive television ads.
4. When choosing an underlying fund, look at its long-term track record. Ask for a fund fact sheet (also known as a minimum disclosure document) and look at its track record (at least five years). Does the fund have a record of delivering inflation-beating returns over five years or more? If yes, then go for it!
5. Investment style is important. You won’t need to do too much research to discover that index funds outperform actively managed funds over the long term. Some active funds will occasionally outperform index funds over a year, maybe over two years, but that is where it ends. Over the long-term, passive funds outperform active funds, and retirement savers are in it for the long haul.
6. Be wary of what looks like a free lunch. If you’re offered a product with a “booster” or a “bonus”, chances are you’ll be financing this “bonus” through fees charged upfront or over the long term.
7. And, a final word of warning: always choose evidence over emotion. Whether you’re just starting your working life or are 20 years into it, applying the above basic principles will definitely save you time, money and hassle. It will also ensure that you’re on track to get off the treadmill and enjoy the fruits of your hard work when it’s time to retire.
Khwezi Jackson is an investment consultant at 10X Investments
PERSONAL FINANCE