Only 6 per cent of South Africans can afford to retire – 45 per cent are dependent on their family, 32 per cent are forced to continue working and 17 per cent rely on the R1 500 per month state pension.

“Your [client’s] retirement plan today should cater for the life you want tomorrow. To give them a better chance of being financially independent when you retire, you need to be sure you are saving enough and investing wisely,” says Jeanette Marais, director at Allan Gray.

In pursuit of your long-term goals, Marais suggests avoiding these five common mistakes:


Mistake #1: Panicking that it is too late

In your employment years, there is always tomorrow and the guarantee of a salary that will arrive at the end of the month.

“Often people realise towards the end of their working career that they may not have set aside enough money for retirement. Don’t panic; rather look practically at your situation and put a plan in place. Your actions today protect you tomorrow,” says Marais.

“If you haven’t started saving and you’re in your late 30s or early 40s, cut back on your current lifestyle so you can put the difference towards your retirement,” she says, adding that the alternative is to plan to retire a bit later.


Mistake #2: Playing it too safe

Marais believes that one of the biggest mistakes people make is investing too conservatively.

“Equities may be volatile, but they have outperformed other asset classes over the long term, so it is essential to have a sizeable portion of equity exposure in your retirement savings portfolio,” says Marais, adding that this is true even for people nearing or at retirement.

“People forget that retirement is not the end of their financial plan, but the beginning of a new one. You may still have 30-40 years ahead of you so it is essential that your portfolio is structured for some growth.”

Marais suggests that balanced funds provide a good solution for most investors. “Balanced funds can invest up to 75 per cent in equities, but other asset classes can also be used, diversifying the risk and reducing volatility,” says Marais.


Mistake #3: Putting all your eggs into one basket

The next big mistake is to put all your eggs into one basket and not diversifying your investments.

“By investing in a range of assets you allow yourself the opportunity to get returns from different sources regardless of marketing conditions. Again, a balanced fund is a good bet for investors who want to invest in a range of assets and want some offshore exposure, but do not want to build a portfolio themselves,” she notes.


Mistake #4: Switching indiscriminately

Often when your unit trust doesn’t perform as well as you would like, or if there is a period of extreme volatility in the market, you may be tempted to sell and buy another, otherwise known as “switching”.

“Switching when the market has dipped can destroy the value of your investment. Timing the market correctly is extremely difficult, and responding emotionally may take you much further from your investment goal,” cautions Marais.

She suggests doing careful homework at the outset to make sure you pick an investment you are comfortable sticking with. “Give your investment manager the opportunity to really make your money work for you. You should change your portfolio when your investment objectives have changed, and not in response to market movements.”


Mistake #5: Dipping into the cookie jar

More than 80 per cent of South Africans take all their retirement savings in cash when they change jobs and are given access to the money. Then they have to start saving all over again.

“Over the long term, taking a payout and spending it may cause more harm to your accumulated retirement savings than you think. You may believe you will have plenty of time to make up for the years of saving; in fact, not preserving costs you more years than you may realise. Not only will you have to start again, you will also miss out on the full power of compound interest,” says Marais.

Marais explains that a small investment made early will deliver so much more than a larger investment made later; making the first 10 years far more important than the last. For example, if one person invests R1 000 a month for ten years and then stops but remain invested for the next 30 years (a total of R120 000 contributions), and another invests R1000 per month for the last 30 years (a total of R360 000 contributions), they both end up with the same amount at the end of the 40-year period.

“Know your goals, choose what is going to be right for you and avoid these basic mistakes,” Marais concludes, adding that if you find the decision-making process too complex or daunting, consider talking to an independent financial adviser.


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