You are currently viewing our desktop site, do you want to visit our Mobile web app instead?
 Registered users can save articles to their personal articles list. Login here or sign up here

Beware the real enemies of wealth

We tend to focus on the wrong things when assessing impact.

Investors generally view geopolitical events, currency volatility and concerns around slowing global growth as the main enemies to wealth creation, but these should be the least of their worries. While these events can cause short-term volatility and uncertainty, there are bigger enemies to be aware of. 

Saving too little, especially for retirement

The number one mistake people make remains not saving enough, and the pain is primarily felt in the retirement space. This retirement shortfall gap currently sits at around $70 trillion and continues to grow at around $28 billion every 24 hours. When you consider that the 2008 Global Financial Crisis caused $2.8 trillion in stock market losses, you realise that those losses were less than 1% of the total retirement income shortfall. We tend to become obsessive about market events because media reports keep them top of mind and because they confront us with a loss right now, rather than because of the severity of their impact. 

South Africa is no exception to global experience. According to the Organisation for Economic Co-operation and Development (OECD), South Africa has one of the lowest gross replacement rates in the world. OECD countries have a projected future gross replacement rate (GRR) of 70%, while South Africa’s is only 12%. This means that on a current monthly salary of R10 000, South Africans have only saved enough to draw an income of R1 200 in retirement.

Source: PSG Wealth research team

Emotional reactions to market events

The above infographic highlights that we tend to focus on the wrong things when assessing their impact: short-term factors often carry more weight than they rightfully should. Market volatility can be unsettling, but it should not deter you from saving. Yet we find many people postpone saving, believing volatile markets won’t reward them, or opt to save in cash instead of investing in stock markets. Being swayed by recent market volatility often leads to poor financial decisions based on emotions, rather on facts. It’s critical to keep your eye on the long-term horizon of your investment and filter out the noise. You want to be invested in funds that offer a smoother return over time and consistently stay above the benchmark, rather than jumping from one best performing fund to another, trying to time the market and getting it wrong.

Ignoring inflation and opting for cash

While inflation does not reduce the money you have saved up, it manifests itself through reduced spending power. Its impact is negligible in the short run but profound in the long run. It is crucial to price inflation into your wealth plan. If your returns don’t beat inflation, you’ll never achieve your financial goals. Investments in cash do not help you growing your wealth in real terms. 

Beware the real enemies of wealth

Market volatility can slow down wealth creation in the short term, but saving too little, together with emotional decision-making and inflation are by far the biggest enemies of wealth. Speaking to an experienced financial advisor can help you decide on, and stick to, a suitable investment strategy that will optimise your desired outcomes and help curb emotional decisions during turbulent times. Provided that you are guided by an expert and invest in quality shares, equities are well worth the wait and risk, as they have been proven to beat inflation by a wide margin over time. 

Adriaan Pask is Chief Investment Officer of PSG Wealth.

The views and opinions shared in this article belong to their author, cannot be construed as financial advice, and do not necessarily mirror the views and opinions of Moneyweb.

Get access to Moneyweb's financial intelligence and support quality journalism for only
R63/month or R630/year.
Sign up here, cancel at any time.


To comment, you must be registered and logged in.


Don't have an account?
Sign up for FREE

No, sir. You are very wrong. The biggest mistake you can make is to hand your money over to a broker/fund manager, believing that all will be well. You have a very nice proviso (“Provided that you are guided by an expert and invest in quality shares…”), but how do you do that, with ALL of them having made losing investments (and not held to account for that)? Then, your suggestion to not time the market is ridiculous. Because of life, you are forced to time the market, for there will come a day and a time when you have to dip into your savings/investments. If the timing is wrong, you can’t stop living for a few years until the market improves. And by the way, why don’t you live off R 10k a month and see how much money you have left to invest/save. I’m not even going to point out the rest of you fallacies, for this is a nonsense article, purely aimed at advertising wealth investment officers.

Well said.
Beware the real enemies of wealth.
Fund manager’s/broker costs.
Fund manager/broker advice.

About 90% of people in South Africa don’t even know that there is a ‘market’. They think their children will look after them when they are old. Those that have a pension fund via the employer don’t realize that the money is mostly in the ‘market’.
People know nothing about money or how to create wealth.
But they know how spend and make debt.

Adriaan, I see you conveniently left out another one of the biggest enemies of wealth – Active Investment Management Costs. But being the Chief Investment Officer of PSG Wealth, I can understand why.

PSGs costs( like many firms) are incredibly high compared to global peers. Take the asset manager fees, platform fees and advisor fees and the dividend yield is gobbled up! Why bet against Warren Buffet-buy a cheap US or global fund

You save NO money, other than into a “proper” retirement programme (usually a pension/provident plan) whilst you have debt. Your debt is at a higher interest rate OR the quantity of debt you pay is also higher (ex. Home bond 1st 5 years almost all interest.)As you get older the debt should come down quickly and then you do not have to beat the debt interest (credit cards 19%) to break even.

Load All 8 Comments
End of comments.





Follow us:

Search Articles:Advanced Search
Click a Company: