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Cape Town - The sad reality for South Africans is that 94% of them “actually are in junk status”, according to Steven Nathan, CEO of 10X Investments.
While welcoming the affirmation of SA's investment-grade credit rating by Moody's late on Friday, Nathan said he hoped South Africans would be spurred to focus on their own individual financial wellbeing and ask if their own status could be described as investment grade or junk.
Nathan said statistics over the last 25 years have shown that no more than 6% of South Africans can afford to retire.
“There is no other way to describe that than as a failure or junk status,” he said.
He explained that the global rating agencies evaluated the future health of the country’s finances, not just what the picture looked like today.
“They are looking at what they think the picture will look like into the future. They are looking at whether the country’s policies and way of operating is likely to lead to good, neutral or poor outcomes,” he said.
In his view, this could be applied to individual’s financial wellbeing too.
“What we need to focus on as individuals is what the outlook is for our own financial wellbeing. We don’t need ratings agencies to forecast this for us. We can forecast it for ourselves and see what the outlook for our retirement is," said Nathan.
"We must ask ourselves if our retirement is an investment grade retirement or if it is a junk status retirement. We should look at how we can improve our own status and hopefully get an upgrade in our retirement outlook, hopefully even an upgrade to 'investment grade'.”
For Nathan that meant to take charge and make some decisions - some of them quite easy, others more difficult.
“A really easy decision is to ask: Am I invested in the right portfolio, am I invested in the portfolio that is likely to give me the best growth?”
In his view, most people had no idea where their money was invested. By investigating where their money was invested they could make some decisions to "upgrade" their retirement significantly.
Individuals must also make sure they are saving enough.
“Optimally you should be saving 15% of your salary. If you are below 15%, you should try and look at how you can get there. That is where it is a bit more difficult, because we must trade off some of the things we want to do today,” he said.
Fees charged present another area where people could make a decision. Investors need to find out what the total cost of investing is, Nathan said, “although that is not always that easy because in SA the industry is opaque”.
“Be sure to understand the total cost of investing. What am I paying my adviser, my platform, what are the expense ratios in my fund? The average South African is paying 3% and they should be paying 1% or less," he said.
“If you can save 2% [of the total value of your savings] in fees over the next 10, 20, 30 years, that will have a dramatically positive impact on the outlook for your retirement savings. That is a sure way to 'upgrade' the status of your retirement fund."
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