Planning for a comfortable retirement – On the Money with Jarryd Neves

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Jarryd Neves
On the Money. Budding stock market investor Jarryd Neves, of BizNews, sends out an invitation to everyone who wants to ask questions about share investing – but is too embarrassed to ask. Write to [email protected]. And tune in for his regular Monday column: On the Money

What my age group tends to gloss over when planning their finances is saving for retirement. Not because they’re irresponsible or nonchalant about their golden years, but because it hasn’t even crossed their minds.

The younger you are when you start saving, the better. But before you just start, it’s best to implement a plan of action. First, you need to determine when you want to retire and how much money you can comfortably live off each month. While R3m may be more than enough for one person, it wouldn’t last another person a decade.

Your lifestyle and standard of living play a big part in determining how much you should save in order to fulfil your needs in retirement.

So how much should you save? Marise Smit, a financial planner says that you should ‘save at least 10% of monthly income’.

‘The longer you save for retirement the bigger the benefit you will gain from the power of compounding’, she says.

Nirdev Desai of PSG echoes this sentiment. ‘Many people make the mistake of not adequately planning for retirement’.

Desai also outlines the major benefits of starting early. If you begin saving at 20, ‘you’ll need to put aside half as much in total, compared to if you only start at age 35’.

So, where to begin? Speaking to a financial advisor would be a good starting point. Not only will they be able to guide you in the right direction, but also work out what is best for you with your current budget vs your wishes for retirement.

Part of saving for your retirement may be realising that you need to cut back on your current spending. It may be difficult readjusting to a trimmer, low-fat version of your lifestyle. But it’s a sacrifice that is worth it. No one wants to struggle in retirement.

Last week, I asked you to send me your finance and investment queries. Here, Arin Ruttenberg* of Brenthurst Wealth shares his expert advice by providing answers to your questions.

Patrick asked,

I built up a business in the 90s, which was doing well until the financial crisis of 2008/9. After liquidating the business and selling most of our assets to settle the business debts, we bought a small flat in the months preceding the introduction of the Consumer Act. We literally bought the flat without money – we were approved for a 114% bond which covered all the costs of purchase. 

We renovated the flat in 2009 and decided not to put in a long-term tenant, but rather do short-term holiday lets. We had a good first year and in 2010 (World Cup year) we really did well – four other owners asked us to manage their flats as well. By the end of 2011 we had twelve flats under management and at the start of 2018 we had a portfolio of twenty eight self-catering units. 
In late March 2020 all our bookings were cancelled. By the end of the year the small company we had built up was effectively moth-balled. For the second time in our lives our financial situation had been devastated by extraneous events. In June I cashed in a small policy to keep our staff and try to hang on for some summer bookings. Along the way, our company took a Covid relief loan from FNB and we are now living off some savings. 

I’m an occasional reader of BizNews but this week I subscribed and joined Alec Hogg’s webinar. I was motivated to join because I had read about the BizNews Share Portfolio and what it has achieved in ten years. On a more modest scale I would like to start investing now and hopefully achieve something over the next ten years. I am asking for any thoughts and suggestions on how I can achieve a meaningful investment. 
Arin Ruttenberg replies,

Well done for recovering from financial setbacks in the past, determination is an important component of an investment strategy. Although we do not have all the information regarding your overall financial situation, one thing that needs to remain constant for investing successfully is diversification, i.e. not putting all your eggs in one basket. In other words, one needs to be invested across different asset classes (shares, property, bonds and cash) and within each asset class there needs to be further diversification across industries, companies, countries and currencies.

We have experienced many entrepreneurs like you who often become emotionally attached to their business, reinvesting all their capital back into the business as if it’s invincible, or they are often not mindful that their business is a single company involved in a single industry earning a specific currency. In your case it appears that apart from your business, you previously invested in one asset class – property. Property investments, like all other investments, performs in cycles and at times deliver exceptional returns and then poor returns as the cycle changes.

To start a truly diversified investment portfolio you can certainly invest in shares directly through platforms like Sharenet or Easy Equities. Do note, however, you will have to do research and understand the companies that you select to invest in and also take note of the industries that they operate in. The past year has shown how one global event can unexpectedly impact a variety of industries and companies. You can also select investing in unit trusts or exchange traded funds (ETFs). That way your entire investment is not exposed to a single share or set of shares.

The unit trust and ETF universe is vast, comprising of asset class specific options such as SA equity, commodities, property, fixed income etc. which would still require research and there are also multi asset unit trusts (where several asset classes are invested into within one unit trust). No matter the chosen route, it can be challenging to select an investment that will achieve what you are setting out to do by basing your decisions on historical returns as past performance is no guarantee of future success. To establish a diversified portfolio, that will give you exposure to different asset classes, industries, regions and currencies that will suit your investment goals, do consider contacting a qualified, experienced financial advisor. An advisor will review your complete financial status and devise a plan that will suit your particular circumstances. Do visit the web site of the Financial Planning Institute [www.fpi.co.za] for guidance.

Have a question about share investing? Write to me at [email protected].

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