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1% can make all the difference!

The difference between good and great investment advice can sometimes be as small as 1%, but what difference can 1% actually make?

In the first of two examples, to illustrate the point, a 25-year-old saves R 2000 p/m until the age of 65, his contribution increases with 10% each year. If he earns a nett annual return of 11% compared to a nett annual return of 10% (1% less), he will have accumulated R 54.9m, compared to R 44.5m, at the age of 65. A massive difference of R10.3m (23,3%).

In the second example, a person retires today at the age of 65 and has R 5m capital available to invest for his pension and we assume a life expectancy of 90 years. If he earns a nett annual return of 10% he can withdraw a monthly income of R 20 830. If he earns a nett annual return of 9% (1% less), he will only be able to withdraw R 18 780 p/m. That is a difference of 11% or equivalent to R 1.3m over the remainder of his lifetime.

It is clear that a 1% difference can change your life.

The following aspects needs appropriate attention to make sure you get optimal returns.

Firstly, make sure you are receiving investment advice from an independent advisor that is an expert in this field, someone with appropriate qualifications and experience.

Secondly, you should review your existing traditional retirement annuities with insurance companies, some of these could be very expensive investment products and currently there are new generation retirement annuities with much better fee structures available in the market.

Thirdly make 100% sure you know exactly what fees are being charged by your financial advisor. Lastly, if you are part of an employer pension scheme, you should be asking the same questions.
I therefore encourage you to take responsibility for your financial wellness, you still have time to change your future.

Heinrich Coomans | CA(SA) | CFP ® is a director at Affluence Group and spesialises in Investments, Personal and Business Insurance. For any questions please contact him at or 084 586 9509.

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