Investing is hard! Let no one ever tell you that simply putting money aside on a monthly basis will solve all your retirement problems without a proper strategy. It is estimated that up to 80% of your retirement “pot” is likely to come from the growth in your monthly savings rather than the actual savings themselves. As such, we need to give the appropriate attention to how this money is invested.
Fortunately, the world of investments is constantly evolving and, in many ways, we now have more opportunities and tools at our disposal than previous generations had. So how does the current landscape of investing stack up relative to the world of your parents?
Nine investment elements your parents wished they had:
- Choice: there have never been more funds, more managers and more investment platforms than we have at the moment. One benefit of this is diversification, a genuine free lunch in investing. The more independent sources of return we can identify, the greater the levels of diversification. The other benefit of having more managers and product providers is the increased competition, which — over the long run — drives down the fees that investors pay.
- Technology: choice leads to complexity and overcoming complexity requires insight, data processing and visualisation tools. Our environment abounds with self-help, online tools such as robo-advisers and sophisticated software utilised by financial advisers to map out your future, identify opportunities and create a customised plan for each individual. Our methods of portfolio construction have never been more thorough, more personalised or more comprehensive.
- Insights: a massive upside to technology is the ability to understand where performance comes from and how to manage your investment plan accordingly. Examples of this are:
- a)understanding the styles that underpin equity investing, stripping out how much of that is systematic bias and then replicating this through lower-cost, smart beta products;
- b)appreciating when interest-bearing investments are likely to outperform equities and vice versa;
- c)understanding the impact of currency movements on your portfolio.
- Costs: “Aha, you say – but all this comes at increased cost!” Actually, no. Costs have been declining for years, both locally and internationally, particularly within the active manager space. In fact, the average consumer pays less than two-thirds of typical unit trust fees in the 1990s, and the rise of passive investing has given investors access to the performance of markets at almost negligible costs.
- Opportunity: South Africans have seen their ability to invest internationally increase significantly over the years from 1% of their retirement portfolio in the early 1990s to 30% today, with an additional 10% allowance for Africa. South Africans are also individually entitled to take R10-million in foreign investment allowance offshore every calendar year. So, as an individual, your prospects are not solely linked to the successes (and failures) of your home country, but you can participate in the asset growth of global economies.
- Accessibility: platforms abound. In the past investments into, for example, unit trusts, had to be done directly with that company’s management company, leading to difficulties (and inertia) when one wished to re-allocate assets. Today there are multiple platforms, with very low switching fees, with low cost and negotiated access to the bulk of products, all bringing you the up-to-date aggregated valuation, asset class breakdown and performance of the various funds within your personal portfolio.
- Implementation: the second wave of choice is vehicles. One is no longer limited to single investments products but can invest in vehicles ranging from exchange traded funds to exchange traded notes, to unit trusts to endowments and, of course, directly into individual instruments, for example shares. Each vehicle enhances the ability of individuals to tailor-make a strategy that conforms to their own needs.
- Expanded asset set: the world of private investments including direct property, private equity (and debt) and, not least, hedge funds, used to be the preserve of only institutions and high-net-worth individuals. Recent legislation has opened these up to the average investor.
- Legislation: the regulatory framework that underpins the investment environment has never been stronger — no more “fly-by-night” advisers promoting ill-considered products without taking responsibility for the consequences. The latest laws including Treating Clients Fairly allow clients to hold advisers to account and ensure that, not only are products correctly represented and sold, but they must be appropriate for your circumstances.
The world of investing remains a scary place for the uninitiated and uninformed, but we have at our disposal the most comprehensive set of tools for improving our understanding, and creating a plan that services our individual needs and our individual risks. There truly has never been a better time to be an investor.
For more information visit https://www.sanlaminvestments.com/
Guy Fletcher is head of client solutions & research at Sanlam Investments