Take control of investment results
A focus on performance places too much emphasis on something that is out of your control: what the market will do next month, or next year. Ultimately, how markets perform over the short term is not as important as time itself when it comes to investment results.
Indeed, as our research shows, despite the various challenges of the past three decades – the fraught transition to democracy, the global financial crisis, etc. – even someone who invested at the worst time of the month, every month, for the past thirty years, would have achieved 88% of the returns of an investor who managed to invest at the perfect time of the month, every month.
Rather than focus on what you cannot control, investors should focus on what they can control:
- Fees: the higher the fees you pay, the more your investment returns will be eroded.
- Time: the sooner you start earning investment returns, the sooner those returns start compounding.
- Taxes: tax-efficient investment vehicles help to preserve your returns. For instance, with tax-free savings accounts (or TFSA’s), you enjoy tax-free growth on your investment. In the case of retirement annuities (or RA’s), the contributions to your RA are tax-deductible, and you enjoy tax-free growth on your investment until you retire, at which time you have the option of accessing up to a third of your investment tax-free.
While it is important to make educated decisions regarding the fees and taxes associated with an investment product, time is the one factor that lies entirely in your hands.
The value of time
The graph shows the difference between two investors who both start their careers at age 20:
- Investor One invests R500 every month between the ages of 20 and 30 before he stops.
- Investor Two only starts investing at age 30, and he invests R500 every month until he retires at age 60.
Source: Cannon Asset Managers, 2019
Investor One invests R60 000 over a 10-year period, whereas Investor Two invests R180 000 over a 30-year period.
While both receive the same annualised 10% return on their investment (for the purposes of this example, in Cannon Asset Manager’s Balanced Growth RA Bundle), because Investor One started 10 years earlier than Investor Two, his investment has grown nearly twice that of Investor Two.
Which investor are you?