There are as many investment philosophies as there are investment gurus, but there’s one thing every financial advisor can agree on: the sooner you start building your wealth, the better. Here’s what the experts don’t tell you: hidden costs are eating into your gains, which will ultimately result in a smaller nest egg.
Let’s consider why you need to invest for the long term, and how you can maximise your gains by avoiding unnecessary fees. We’ll also take a closer look at products that offer a unique combination of low fees, tax benefits and simplicity, therefore offering a more efficient means of growing your wealth for retirement.
The most powerful force on earth
It has become an investment cliche that compound interest is ‘the most powerful force on earth’ or the ‘eighth wonder of the world’. The cliche reveals a powerful truth. Compounding is effectively a multiplier on your wealth that makes time one of the most effective investment tools there is.
In simple terms, by reinvesting your returns, you now earn returns on your returns. Compounding is like steroids for your wealth, causing your investment to grow well beyond its natural capacity.
In practical terms, there is no substitute for time. An investor who grows her wealth over thirty years could expect a bigger payout at the end of her investment period than someone who invests an even larger sum over 20 years. Simply put, the sooner you start investing, the greater your eventual gains. The time to start building your wealth is today.
Time doesn’t simply grow your wealth, it also protects it. Investing in shares is inherently more volatile than keeping your money in the bank. Time smooths out that volatility. There are good trading days and there are bad trading days, years in which the market surges, years in which it dips. However, when you stand back and look at the markets over decades, equities stand out as a consistent source of high returns.
That’s important because the returns on a bank account barely keep up with inflation or the depreciation of the rand.
Spend money to make money?
When you consider that time is the most effective investment tool, and compounding is the secret sauce for growing wealth, it becomes clear that even small annual deductions are going to add up over the long term. So why do we accept management fees and other costs when we knows that, decades later, a chunk of our wealth will have been eaten up by fees?
The conventional wisdom is that money managers outperform the market, justifying their fees by securing bigger gains. Unfortunately, the data does not support this view.
That’s why Warren Buffett, arguably the most successful investor on earth, is now praising passive investments funds, such as ETFs, and calling investment fees a waste of money.
As Buffett and other seasoned investors point out, you can get all the benefits of investing in the market without the downside of management fees.
Build your future today
This month’s My Treasury’s spotlight is on 10X Investments. Their simple and transparent investment products put them right in line with the My Treasury ethos of ‘a wiser way to save’.
What we really like about 10x is that they offer minimal investment costs, so you can invest in the market without losing a chunk of your returns in management fees. In short, lower fees mean significantly higher gains over the long run. And by investing in a retirement annuity, you gain significant tax savings, maximising your wealth over time.
The data shows that most South Africans don’t save adequately for retirement, and simply cannot afford to retire. If that weren’t bad enough, excessive fees mean many investors simply aren’t getting the value they deserve.
Enter your details and a consultant will call to discuss how you can most effectively grow your wealth for the future. It’s not too late to start investing, but the time to act is right now.