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Two different approaches to retirement saving can deliver two dramatically different results, warned Steven Nathan of 10X Investments at a retirement seminar hosted by the company in Cape Town.
He gave the example of twin brothers who earned the same salary and each saved the same amount per month from 1973 to 2013. Because they used different company retirement funds, the one ended up with a much larger pension than the other.
What made the difference?
The brother who ended up with the much bigger pension used a high equity tracker fund with low fees and he stuck with one fund and one provider throughout.
The other brother, who ended up with much less upon retirement, could choose between many investment options and changed providers and funds several times.
"Your investment horizon is likely to outlive most investment funds," said Nathan.
In 1998 there were a total of 30 unit trust funds in SA. By 2014 24 of these funds no longer existed. On top of that there were more than 1 000 unit trusts in SA by 2014.
"If you had never followed financial market performance for the past 40 years and invested R1 in 1973, by 2014 it would have grown to R23 if you had invested it in local shares, R11 if you had invested it in international shares, R2.5 if you had invested it in bonds and R2.2 if you had made a cash investment," said Nathan.
"Everything you need to know in one sentence would be 'save 15% of your salary for 40 years in a high equity tracker fund with total fees of 1% or less'."
Rob Rusconi of Tres Consulting was another speaker at the event.
"We are not economic units, our lives and paths are unique," said Rusconi.
"Few financial advisers have the right incentives to care as they are seldom remunerated on quality of advice and are seldom there to help when things go wrong."
He referred to The big retirement risk by Erin Botsford and said it had a good core message. This is to take control of your retirement planning, to plan ahead with the goal in mind, to take care when accepting the advice of experts and to invest assets in retirement for income.
He also likes her advice of distinguishing needs from hopes.
"Take personal responsibility for your retirement savings, learn along the way, be careful whom you trust, live for tomorrow and do not overestimate competence," concluded Rusconi.
- Fin24
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