As somebody who bought his first share on the JSE at 14, was trading derivatives at 20 and spent 15 years as a financial journalist, the idea that I think my Retirement Annuities (RA) are sexy, makes me chuckle.
I went through much of my early 20’s imagining myself as a swashbuckling day-trader and punter of small-cap shares on the JSE.
10% return per annum was for amateurs who knew nothing about financial markets – I wanted 10% per month. I had places to be…
I spent much of my 30’s thanking my financial advisor for forcing me to save through my RA’s because I clearly wasn’t as clever as I thought I was.
So what changed? Life I think:
I had kids and my expenses rose significantly – there were always more expenses than I expected
I crashed a business which had initially been funded off my trading profits.
I became more acutely aware of time. Fixed monthly expenses arrived with far more frequency than what the market was doing!
After a sit-down with my financial advisor, it became very apparent that all I was doing was churning my money through my trading activities and I wasn’t building anything sustainable.
Eventually we started to settle down and build a plan that involved me investing in two Retirement Annuities (RA) – one with an active management slant and one that was focused on a low-cost index tracking offering.
As my earnings increased, I was then able to commit an amount of money to this retirement strategy – and enjoy the tax benefit from the contribution each year.
My retirement annuities are now on track to deliver me somewhere around R1.5m when I retire in 27 years’ time. T
he problem with this is that R1.5m in 27 years’ time is only worth R311 000 in todays’ money, if we assume 6% inflation.
This is where I start to kick myself for not being more disciplined around my savings habits in my 20s. Had I been more disciplined and not tried to convince myself that I could trade my way to wealth, I would be on track for a significantly better retirement and would be able to take advantage of the benefits of compounding.
Interestingly, I pulled some data for the last 15 years and there was only 1 year (2008) where the JSE All Share Index had a negative total return including dividends. 2011 (+2.6%), 2015 (+5%) and 2016 (flat) returned negative real returns net of inflation.
In comparison – net of trading fees – my trading has been negative on far more years … and I haven’t had any tax benefits to realise!
I enjoy taking the odd punt on the market and I have learnt a lot from active trading in the market but the reality is that I did myself a disservice by not being more proactive around my retirement planning.
Fortunately, as you grow up you start to learn more about yourself and your personality and can use tools such as a Retirement Annuity (RA) to make sure that you are focused on building some long-term wealth.