Hint: it’s not just about saving more of your income
Between the upcoming mid-term budget policy statement and corporate financial year-end, now is an ideal time for South Africans to check the health of their retirement investments. As with all planning and budgets, the trick is weighing long-term costs against actual performance, experts say.
Andre Tuck, team leader for retail investments at 10X Investments, says, “Reviewing their investments more regularly – preferably at least annually, but ideally quarterly – is a money habit that could change South Africans’ long-term futures, particularly if they pay attention to costs.”
Investing but not checking?
Employed people often have multiple investments, including company funds, tax-free savings accounts, and retirement annuities. “Yet South Africans generally do not perform annual checks on their finances or investment statements, which is a crucial habit to adopt,” he says.
Tuck lauds corporate HR departments for encouraging employees to sign up for retirement products and other investment opportunities. However, he says, they do not encourage frequent enough check-ins on investment values and the costs employees are paying for their investments. As a result, employees can be short-changed on their final investment values.
“South Africans are saving, but too many end up with less money than they had hoped for at retirement. Most corporate employees belong to company pension funds, where the general rule is to contribute 15% of gross salary over 30 years to retire independently. But according to the National Treasury, only 6% of people manage to do so,” Tuck points out. “We talk to people daily who are unaware of their current investment value, even when they are close to retirement.”
Compounding cost
Investors can use the tools provided by financial services companies to check the effective annual cost (EAC) of investments, which now have to be disclosed in full, he says.
“The EAC includes all layers of fees that individuals pay, such as investment management, administration, and advisory costs. Consumers may be paying unnecessarily high fees, which can severely reduce investment value over time. Paying just 0.5% more in fees per year can compound over 40 years to more than 20% reduction in your total investment,” he comments.
“Even if you’re using a digital platform to make your investments, it’s worthwhile chatting to a retirement expert,” Tuck suggests. “That way you get the facts on your investments, and can make decisions based on a range of inputs, rather than just one company’s sales pitch.”
“Speak to a number of people and bear in mind that they may have their own incentives to sell you a particular product,” he adds.
