Local statistics reveal that only 6% of South Africans can comfortably afford retirement. Conflicting priorities often make it difficult for investors to balance immediate needs with long-term savings goals. Despite stretched household budgets, there are strategies to enhance your retirement savings.
In the spirit of Savings Month, here are three levers you can utilise to maximise your finances: Lever #1: Prioritise Retirement Savings: Allocate any additional income received, such as tax returns, bonuses, or supplementary earnings, towards retirement savings. Lever #2: Preserve Retirement Savings: Early withdrawals significantly impact South Africa's low retirement savings rate. Preserve your retirement funds when changing jobs to maintain long-term financial security. Lever #3: Delay Retirement: Consider extending your working years to allow your investments more time to mature. This extra time can significantly enhance your retirement nest egg.
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The end of 2023 is fast approaching and with it, a sigh of relief. It was another volatile year where politics and economics continuously toyed with our emotions. There was little peace amidst the turmoil we witnessed throughout the year, and it’s only natural that some of us are experiencing some level of fatigue. In the run-up to savings month this July, we’ve been sharing quite a lot of content such as how to cultivate healthy financial habits as early as possible, the power couple that is savings and investing, the perils of sitting on the sidelines and not investing your cash as well as the importance of saving consistently. In this article, we’re going to keep things a bit more practical and look at the various choices or products available through which to save and grow wealth. Innovations and Challenges New tools for investing—such as online trading platforms, cryptocurrency, sustainability, private markets, and separately managed accounts with personalized direct indexing—have energized the investing landscape, garnering interest from both the technology and finance industries. With this new excitement, however, many may have failed to consider how investors are managing this onslaught of new investing tools and to what degree these new capabilities promote investor success. In other words, we need to understand the relationship between investors, their long-term financial goals, and new investing tools. The failure of three US regional banks as well as the collapse of global investment bank Credit Suisse has sparked fears of a looming global banking crisis in the first half of the year. Concerns around a run on bank deposits and a contraction in lending have contributed to relatively widespread pressure on global banking stocks as investors consider the risk of contagion spreading across the sector. South African banks have also come under pressure as investors have generally sold down holdings of perceived risk assets during a turbulent time for capital markets. A systemic banking shock would have especially adverse implications for markets with the experience of the 2008 financial crisis providing a gloomy backdrop for a potential fallout. A record amount of R1.6 trillion is currently held in South African bank accounts as retail savings deposits. This is a staggering amount of money which is currently conservatively invested. In many ways, this movement of funds reflects the significant uncertainties faced by investors, both in South Africa and globally. Many investors are sitting in cash with the hope that an attractive entry point into markets may be on the horizon. Unfortunately, as history has taught us, trying to time markets can mostly be regarded as a fool’s errand. Investors are often better off being guided by their willingness and ability to take risk when making investment decisions, rather than the current news flow or the latest geopolitical event. When you earn and/or have money, you have the ability to control how you spend it, save it and/or invest it. This is where the cardinal rule comes into play of making sure you control your money, instead of your money controlling you. Let’s first consider the difference between saving and investing. Whether you set aside extra money in a physical piggy bank or your bank account, the act of saving is simply storing away any extra cash to use later. People save for various reasons, but the ultimate reason is to gather a certain amount to spend later or ensure a comfortable retirement. Investing involves putting money into instruments like shares, bonds, property etc. to achieve a certain goal. Different investments have different risk and return profiles, so an investor’s portfolio will vary based on the goal. |
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