Weekly Thoughts 07 November 2014

While recently looking through a client’s portfolio, I noticed that it was now 10 years since I had helped this client put away a lump sum from a pension fund into an asset manager’s retirement annuity to grow for the future. We used one of the regular balanced unit trust funds that I use for many clients.

Well, this lump sum – no additional contributions to this particular account have been made – has now grown by 372% over the 10 years! This is an average of more than 16.8% per annum at client-experience level, meaning after all costs and fees. There are a couple of points that come to mind from this example:

That investing over time does beat the cost of money. Meaning that you cannot wait to pay off debt before investing and saving for the future. From looking at a table of the interest rate changes of the Reserve Bank over the past years, the returns on this investment are probably more than double the average lending rate of money in South Africa over the same time period.

That you cannot afford to spend pension monies each time you change jobs. You will never be able to catch up the lost wealth. No matter how you excuse it to yourself.

That there are very few substitutes to the simple factor of time that offers the opportunity for the exponential growth in investing. Did that make sense? It sounds good!