by Jessica Wood, journalist, Justmoney.co.za
Although South Africans within the middle and upper income brackets are earning enough to live comfortable lifestyles, they need to realise that certain trade-offs are required if they are to maintain this lifestyle in retirement says Old Mutual.
Andrew Bradley, the chief executive officer at Old Mutual Wealth explained: “It is not about what they earn, but what they do with their money that is critical.”
The results revealed that 10% of respondents were not worried about saving for the future, while 14% said that they would like to invest, but did not know where to go for financial advice. A further 23% of participants did not see the benefit of having a long-term savings and investment strategy, as they saw not benefit in being loyal to specific investment companies.
However, the lack of savings that has resulted from this lack of loyalty may have a negative impact on people later in life, when they will need money to survive after retirement.
Lack of investor loyalty
“High earning individuals must take responsibility and consider how much is enough to provide for their current as well as their future lifestyle needs. They must also understand the future impact of their current financial discipline – or lack thereof. An investment plan which takes all these aspects into account is the only way to accurately determine how the assets they accumulate can best be grown to take care of all these needs,” stated Bradley.
According to results released by Old Mutual Wealth in 2014, one in three people do not have any form of retirement savings, with the most popular saving product for those that do save is funeral policies.
Even though 23% of people do not see the benefit of being loyal to an investment house, Bradley highlighted that in order to reap the rewards of investing, you need to leave your money for a long period so that compound interest adds up.
He added that it is also important to have a diverse portfolio. Therefore, people do not need to be loyal to one investment house. You can invest money with several different investment houses, in a variety of savings and investment products.
Tips for sustaining wealth
Bradley pointed out that there are several tips that people can follow in order to build and sustain their personal wealth:
1. Focus on time in the market rather than timing the market: Continue to invest even when the market is low, share prices are cheaper and undervalued, which means that you will get a bigger return when the market is high.
2. Understand time horizons and risk:The longer that you are willing to invest, the greater your returns will be. In addition, you will not have to increase your investment risk to achieve these greater returns as time will work in your favour.
3. Diversify portfolios:Invest in a wide range of portfolios to ensure that you are not relying on a single investment for your returns. However, when looking at the returns of your portfolio, look at your portfolio as a whole and not at individual investments.
4. Keep investing over the long term:As stated previously, time is your friend when it comes to investing. Bradley stressed: “Compounding returns are the most powerful for in investments. This happens when you get growth on your growth. This only occurs when you have been invested for a long period of time.”
5. Ensure investment strategies are customised for specific needs:Every person’s financial needs are different. Therefore Bradley highlighted that it is important that you have an investment plan that has been designed to suit your specific needs, as “what might good for one person is not necessarily good for the next.”