By Ross Marriner
Many retirees complain: "Now that I have retired, I am so busy that – I don’t know how I found time
to work before I retired!" Most of us are incredibly busy during all the various phases of our lives, be
it starting our careers, bringing up and educating our children, ending our careers and embarking on
the retirement journey. For most of us, our busy lives tend to get in the way of our good intentions.
We know we should spend more time on our financial plans, but then life happens!
The key to investing for retirement is to understand certain essential rules and to remember them,
especially when times get tough. The most important rule is to appreciate that investing is a
marathon, not a sprint. In order for your investments to grow faster than inflation, you need to
invest a percentage of your money in growth assets like shares and property. These asset classes are
more volatile or risky than having cash in the bank and sometimes may lose value during market
downturns. Cash, on the other hand, will always earn some interest and therefore may feel like a
safer option. Historically, returns from cash have not grown any faster than inflation over extended
periods of time, so it is unlikely that you will increase your wealth in real terms if you invest most of
your money in this asset class. An appropriate strategy for most investors is to have a diversified
portfolio of investments consisting of shares (local and offshore), bonds, property as well as some
cash.
The difference between investing in cash versus a diversified portfolio can best be illustrated by an
example. Two people retire on the same day, at the same age, each with R 5 million to invest. The
first individual chooses to only invest in money market and fixed deposit accounts at the bank, while
the other invests in a typical balanced portfolio of investments. They both choose to withdraw an
amount of R250 000 per year from their investments, increasing this amount by inflation every year.
Assuming that each portfolio performs at the average historical rate, the person who invested in
cash-type investments will probably run out of money in just over 20 years. The person who
invested the money in a diversified portfolio will also eventually run out of money, but only about 35
years after retiring.
Stock markets are cyclical in nature and often fall by 10% or more during a year. This may cause
investors to panic. Some may be tempted to move their investments into the perceived safety of
cash during periods of uncertainty with the intention of re-entering the market when times improve.
Trying to time the market in this way often results in the destruction of wealth.
Investors who remain patient usually achieve long-term growth if they remain invested. Poor
investment returns are painful and cloud one’s judgement, but the greatest returns are often
associated with the highest level of market discomfort.
An experienced Certified Financial Planner® will be able to help you to plan for your retirement and
ensure that your investments grow ahead of inflation over the long term.
Rands and Sense is a monthly column, written by
Ross Marriner, a CERTIFIED FINANCIAL PLANNER® with PSG Wealth.
His Financial Planning Office number is 046 622 2891
