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SA: A great place to retire and save for retirement

A poor performing economy is no reason to abandon your retirement savings.
Independent research highlights that SA has amongst the highest investment fees globally. Picture: Supplied

In an article published on Moneyweb by regular columnist Magnus Heystek, titled Who do you believe: The salesman or the analyst?, investment company 10x is singled out for “portraying the returns on the SA-based retirement products in isolation, with no reference to the returns you could have earned elsewhere”. In the interest of fairness, we republish the article from 10x’s blog, that was initially referred to by Heystek in Monday’s article.

Our media is dominated by a laundry list of bad economic news, including a recession, widespread political corruption and state capture being revealed at the Zondo Commission of Inquiry, a weak currency, emerging market contagion and corporate shocks, including at Steinhoff and MTN. 

“Experts” are advising savers to externalise large portions of their savings to achieve decent returns. Investment advice is often driven by looking in the rear-view mirror. If someone had told us to sell all our rands at R7 to the USD and invest in the S&P500 at 1 150 in 2011, this would have been great advice. Telling us this when the rand is R15.50 to the dollar and the S&P500 is 2 900 is reactionary and probably irresponsible. 

Many so-called experts advised people to externalise their assets after the rand blew out in 2001, from around R7 to R13 to the USD. Over the next few years, the rand strengthened to R6 to the USD and international markets stagnated. These people’s expenses grew annually with SA inflation, they got substantially poorer each year. This advice ruined many people’s financial lives, yet I don’t know of one advisor or fund manager who was sanctioned for giving bad or irresponsible advice. 

Will the rand strengthen or weaken over the next five years? Will the JSE beat the S&P500? I don’t know. No one does. If they did, they could make a fortune investing in the winning asset and selling the losing asset. They would not need to make a living dispensing investment advice. 

GDP ≠ stock market   

Much of what’s written and spoken about in the financial media by investment “experts” is nonsense. It’s baseless, factually inaccurate and will harm rather than help people. Given the dire state of our economy and our low to negative GDP growth, we are told that saving for retirement in South Africa is a losing game.

You should ignore headlines telling you not to invest in the JSE because we are in a recession. Economic growth (GDP), or lack thereof, does not equal stock market returns. 

The chart above shows the return from the JSE (blue bar) against real GDP growth (grey bar) over the last 20 years, with annual GDP growth averaging a pedestrian 2.7%. Here are some observations:

  • In 1997 and 1998 GDP was 3% and 1% yet the JSE returns were negative. In 1999 GDP fell to 2% yet the JSE returned 71%. 
  • In 2000, GDP was 4% (above the 3% average) yet the JSE returned 0%.
  • In 2002, the JSE return was negative yet GDP was 4%. 
  • In 2008 GDP was 3% while the JSE returned -23%. In 2009, GDP was negative, yet the JSE returned 32%.
  • GDP was 3% in both 2010 and 2011 yet the JSE returned 19% and 3% respectively.
  • GDP was only 2% in both 2012 and 2013 yet the JSE returned 27% and 21% respectively.
  • In 2017, GDP was a mere 1% yet the JSE returned 21%.

What matters for my retirement savings?

It’s important that we all have a basic understanding of the factors driving our retirement savings. I urge you to understand these key principles so that you can make informed decisions that are in your best interest rather than be led astray by others with conflicting interests.

When we retire, we need an income to replace our salary. If we retire in SA, this is a rand income. Assume I will need R30 000 per month when I retire. This amount grows each year with inflation. If I retire in 20 years’ time and inflation averages 6% per year, my R30 000 requirement would grow to R96 000. My savings must grow faster than inflation to ensure I have enough money (rands) to retire. 

My portfolio must beat inflation

A long-term retirement saver, anyone with a time horizon of more than five years, should be invested in a high equity balanced portfolio. Regulation allows this portfolio to invest up to 30% outside of SA and a maximum of 75% in shares. Most high equity portfolios have reasonably similar investment (asset class) weightings. 10X’s high equity portfolio investment mix is illustrated below.

More than half your portfolio is a rand hedge

In the 10X high equity portfolio, international assets (shares and cash) equals 25% of the portfolio. So, a quarter of your portfolio is not impacted by SA GDP, politics or the JSE. 

The JSE (SA equity/shares) makes up another 50% of the portfolio. More than half of the JSE comprises companies that are exposed to international markets and not to SA, including heavyweights such as Naspers, BHP Billiton, Richemont, Sasol and Anglo American. So another 25% of your portfolio is non-South African. Five percent of your portfolio is exposed to SA property but at least a third of this is offshore property. So, more than 50% of your portfolio is driven by the global economy and the major international currencies including the US dollar, the euro and the Chinese yuan, and has virtually nothing to do with SA.

Twenty percent of your portfolio is invested in SA deposits and bonds. This provides exposure to the rand, to match your retirement income requirements, which are also in rands. These investments are not driven by SA GDP, but rather by inflation. 

So your investment exposure to corporate SA is relatively small at around 25% and includes blue chip companies like Standard Bank, Bidvest, FirstRand, Shoprite, Aspen, Vodacom, Capitec and Mr Price.

Facts versus fantasy

The last 10 years has been a poor period for SA’s economy. We have experienced below average GDP growth of a measly 1.8% per year, a global financial crisis in 2008, political uncertainty and large-scale corruption. Given this poor economic and political backdrop and listening to many so-called investment experts and advisors, you would conclude this has been a lousy time for retirement savers. You would be wrong.

A sensibly constructed high equity portfolio has easily beaten inflation over this period, thus creating robust wealth for your retirement savings. R100 invested in the 10X High Equity fund at the end of 2007 would have grown to R306 at the end of August 2018, far outstripping inflation growth of R185. Contrary to many “experts”, SA pension fund portfolios should have delivered decent returns over the last 10 years.

Many retirement fund investors may be shocked by these robust returns as this may differ from their own investment experience. In fact, it’s possible your actual return is below inflation, but this is not because of SA’s poor economy but rather poor industry practices. 

Fees matter

The returns shown above are the portfolio returns before fees. The return your savings earn is reduced by fees. The average South African investor pays total fees of around 3%, comprising 0.75% for advice, 0.5% for administration and 1.5% for investment management plus VAT. 10X believes total investment fees should be kept to a maximum of 1%, implying the average investor pays 2% per year too much. Now, 2% may seem small but over a 40-year savings period, it’s huge. Over this 10-year period, applying a 1% or a 3% fee reduces your investment value to R275 or R222. 

Investment returns disclosed by many SA investment companies do not account for the total costs you are paying. For example, a fund fact sheet applies to all investors and does not include advisor fees or LISP platform fees. Life company investor statements are notoriously complex, opaque and confusing. You must thus ensure you know the return before and after all fees but probably need to do some investigating to get this detail.

Most fund managers underperform the market

Contrary to popular belief bolstered by the marketing departments of investment managers and many financial advisors, most fund managers destroy value when managing your savings. Put simply, most fund manager returns are below the market, even though you pay them high fees to beat the market. Research by Standard & Poor’s shows that over the five years to December 2017, 93% of SA fund managers underperformed the market.   

So another reason your retirement portfolio probably did not do as well as it should have is that underperforming fund managers destroy around another 1% per year in returns. One percent underperformance would reduce your investment value to R199. An index fund performs in line with the market, so there is no reduction in the index fund return. 

Bad behaviour is costly

Most people, including “experts” and advisors, are emotional investors and tend to switch portfolios at the wrong times. There is a growing profession, called behavioural finance, studying how bad we are at making long-term financial decisions. The bottom line is that our emotions cause us to buy high and sell low, rather than buy low sell high. We feel depressed when stock markets fall and sell our shares at rock bottom prices. A rational person would buy more shares at lower prices as this is akin to buying goods on a sale. Instead, we tend to buy at ever-higher marked-up prices. Independent research by Dalbar and others shows that bad investor behaviour costs investors between 1% and 3% per year in returns. If you or your advisor have switched portfolios in the last 10 years, you have likely lost another 1% to 2% per year from this. 

One percent lost to switching further reduces your investment value to a mere R179. An index fund is a long-term strategy that does not require switching away from underperforming fund managers. 

Inflation is a tough opponent for many investors

Inflation does not have any investment fees, manager underperformance and switching risk, so is a tough opponent for investors paying high fees, using active managers and switching funds. Despite anaemic GDP growth of 1.8% pa over the last 10 years, a well structured high equity fund with low costs would have handsomely beaten inflation. However, paying high fees, investing in underperforming fund managers and switching funds would easily have delivered returns below inflation thus destroying your wealth.

What should we do for the next 10 years and more?

My advice is to ignore anyone who tells you your retirement fund has done badly over the last 10 years without being able to explain why. Now that you are armed with the facts, it should be clear to you why you have or have not done well over the last 10 years. The reasons you may have not done well are likely to be different from those you will probably be told by your fund manager, life company or financial advisor. You will probably be told that investment returns have been poor, blaming SA’s poor economy, currency volatility, Brexit, Trump, trade wars etc. This is rubbish.   

The truth is likely to be a combination of high fees, underperforming fund managers and bad investor behaviour. 

Commission of inquiry for pension funds 

Yes, SA has many challenges. Our economy and currency are weak. We have many corrupt and incompetent politicians, and some large companies have also let us down badly. While we want to blame this (and the Guptas) for many things, we can’t pin poor retirement fund performance and SA’s ticking retirement timebomb on them. The real culprits are likely to be the very investment experts you rely on, that you pay handsomely, to grow your retirement savings. Perhaps it’s time to have your own commission of inquiry into your pension fund.

Thankfully this won’t take nearly as long as the Zondo Commission. You will quickly know if your pension fund has been captured by the industry when your advisor or fund manager can’t answer simple questions, gets defensive or takes forever to get back to you. 

Even when GDP was strong, 90% failed to retire adequately

It’s probably time to take charge of your own financial future, lest you end up bankrupt at retirement as so many South Africans have. Since the 1980s, SA has quoted an intolerable statistic that more than 90% of people retire without adequate savings. This disaster can’t be blamed on the ANC government, the Guptas, poor economic growth, a weak currency, the Cold War or any other scape goat. 

Independent research has consistently highlighted that SA has among the highest investment fees globally. Research also shows the vast majority of fund managers underperform the market. This performance excludes other fees investors pay for advisors, platforms and product fees. So the actual underperformance is far worse than the already poor results show. 

If you have read this far, it should be clear that nobody cares more about your money than you. Thankfully with Google in your hand, you can readily find out the value (or lack thereof) provided by fund managers and others in the investment and retirement industry. 

To find out exactly how much of any savings you have with another fund manager you are losing to fees request a free, no obligation fee analysis and cost comparison from 10X by clicking here.

We can’t immediately change the course of SA but we can change our own financial course. 

*Steven Nathan is the founder of 10X Investments.


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It is difficult to save or retire as a South African,
when every new year we have to work to make up for the previous years’
political disasters.

Will we ever catch up?

Run and work hard every year to make up for the previous’ years’ loses.

The very favorable taxation treatment of one’s retirement fund provisions (pension funds, provident funds, retirement annuities and pension income instruments i.e. a living annuity or an insured annuity), make it very sensible to keep at least all your retirement fund moneys invested in S.A. domiciled investments and to not cash it in, take the huge once-off taxation knock in order to invest such after-tax monies on a discretionary basis offshore.

The potential higher investment return earned on global investments, can not compensate for the overall taxation saving benefits applicable to: contributions made to a retirement plan; ii) the taxfree lumpsum withdrawal allowance at retirement age (or if becoming disabled) and iii) the benefit of paying tax in monthly installments on pensionable income once retired whilst all moneys transferred to a pension-annuity plan are still at work for your benefit and still earns reasonable competitive investment return.

Of course within such S.A. domiciled investments of retirement fund moneys, one could and probably should make use of the maximum offshore investment exposure in well balanced and well diversified global investments such as global property funds, global high income funds and global equity funds (without externalising such investment funds). Do not be miss-led by individuals claiming otherwise.

We have another expert!

The irony is had we been told to move our money at R3.00 that would have bee excellent advice, apparently its was also good at R7 so perhaps at R15…not so bad? What would you do at R25? Come back and read the article? I think not.

based on inflation differentials it will be R25/$ even if things go smoothly, it’s just the timeframe that might differ.

Currency markets seldom stick to PPP or inflation differential pricing forecasts. Too simple a approach for a complicated valuation.

US inflation is rising while SA is in a relatively low inflation environment at the moment and therefore I doubt the calculation would come out at 25 zar to usd anytime soon, perhaps 5 or 10 years out.

No, just another FA in search of a commission called management fees.

I retired 5 years ago.

The retirement industry here (and worldwide), is in a mess – as the ”yield” (pre-and-post pension), dried up!

Can somebody please explain to me (defined benefit schemes excluded), where to invest (what choices and what yields?) your pension, on the day of retirement when you must advise the funds where to pay your money, besides the living annuities etc, that’s been covered by all and sundry.

For now, while everything is a mess, bonds and cash return 7.8%

@cccc. I have sympathy. You also ask one of the most difficult questions, which will get 100 different answers from 100 persons 😉

As a retired person, your risk tolerance should be conservative to moderate.

For me an “Income Fund” (one with reasonable exposure to foreign currencies) could be a nice middle ground. Supplemented by say Global Real Estate fund (local or direct offshore) for a bit more risk, but fair stability. Diversify even further if your risk tolerance allows for it.

Strange as it is, I found a sensible type of fund one should have (whether it be your Living Annuity or discretionary portfolio) being a Global Equity type fund…despite the seemingly high risk. Which it is not…been most stable during SA market turmoil / Rand movements. Typically these funds have a balancing/stabling effect: foreign equity movements vs Rand exchange rate movements.

S&P500 index tracker ETF. Low cost, excellent liquidity and 85% of fund managers cant outperform it. Also, you get exposure to the top 500 global companies. Can’t get better diversification, returns and costs than that. Straight from Warren Buffett.

It should be clear whether returns are in US$ or ZAR. To quote a return in ZAR is meaningless without background data of exchange rates and/or inflation etc..

I would love to know where Mr Nathan is invested personally.

I disagree with MH about completely foregoing the tax benefit of investing in an RA.

However looking to get money out of SA into hard currency assets is not a bad idea. (i) You can bank on the ZAr depreciating at around 5 – 6% over the LT against hard currencies, purely on inflation differentials. LT history supports this, yes there will be ups and downs but the trend will be down. (ii) The probability of SA going completely pearshaped is not 0.1% as it was pre-Zuma, it is probably still below 10% but one would be completely deluded to attach no probability to it.

Goodnews Charlies like Steven Nathan are a dime a dozen in corporate SA. Everybody is a member of proudly SA, CEO’d goes and sleeps outside once a year for charity and they are always ready castigate ordinary concerned South Africans for being “too” negative, yet they are not prepared to invest their own firms capital in SA and I am prepared to bet a lot that 90% of SA executives have a plan B in place…

Both Steve Nathan and MH are talking their own books and should maybe focus more of their attention on managing their clients money and spend less time grandstanding in the media. A good way I find to pick fund managers are to disregard those that are always on the telly, the radio or the press!

“I would love to know where Mr Nathan is invested personally.” –

But for you, he’s definitely not going to suggest that you have a look (on your own) and something like the S&P500 or NASDAQ indices.

“…most fund managers under-perform the market”

But what’s comical, is that when one visit most UT funds’ fund fact sheets/portfolio info/past performance sheets….there will be in most cases a graph illustrating how a particular fund has beaten a certain chosen benchmark 😉

And in most cases (it’s DRESSED UP) to beat the fund particular benchmark, illustrated on 10 to 15+ year graph.
But then one studies many funds 1, 3 & say 5 yr returns vs the benchmark…it lags in many cases.

So the fund marketers are very clever by selecting the period (say 10+ yrs) in which their particular fund (still) beaten the benchmark a decade ago. Pin a chart from that 10+Yr historic base, and even if a fund under-performs a benchmark in say later years 5, 3 or 1-yr, the lines on the chart still won’t cross. So at quick glace, it appears that a fund is still cleverly beating the chosen benchmark (as the line-graph still remains higher with a 10-yr head-start) right to the end of chart.

But if a chart is started from say year-3 (when most under-performance took place, for example), the benchmark’s line will beat the fund’s manager fund-graph…and won’t look nice on company marketing “glossy” 😉

There was a big drive in the industry a while ago to be GIPS compliant – global investment performance standards, if memory serves, a CFA initiative. This was done to eliminate exactly what you highlight above, but I do not hear the term that often anymore.

Most of the reputable guys will however give a breakdown on their factsheets of their performance, absolute and relative, since inception, 10 years, 5 years, 3 years and 12 months.

With regards to benchmarks, once again I do not think the reputable guys will change their benchmarks willy nilly, but I have seen some shockers where guys make up their own benchmarks excluding company Y or adjusting dual listed for currency…


The other favorite tricks are:

1. Change benchmark. Have a look at Allan Gray fund fact sheet smallprint.

2. Make the dogs disappear. No house keeps all their old dogs going. When a fund becomes too embarassing to publish, it gets closed, amalagamated, disappeared. In reality, this survivor bias flatters all fund managers. If we say 85% of funds underperform the index over ten years, it is 85% of the funds that are now still around to be able to compare.

Why 1% fees? Those days are long gone. By 2020 only fools and captured trustees will still invest in funds charging more than 0.25%

Example : you can get 99.999% correlated total return of the S&P500 buying SPY (an ETF bigger than SA) with a 0.09% expense ratio. Buy direct, no advisor. It itself is obviously US centric but when you look at the top 20 in S&P then it is quite global in for example source revenue.

Why pay a financial advisor? Johnny worked hard, earned R10m pot of wealth being clever. Why on earth does Johnny then have a brain fart and decide to pay an advisor R50,000 per year to (mis)allocate his R10m. It is not as if there are new secrets to financial advice:
1. Pay off debt
2. If it sounds too good to be true…
3. Don’t put all your eggs in one basket

The 4 that is missing is don’t give away 30% of your return listening to common sense.

Fees should not be based on the capital, only the performance. So sure, take a % of the actual return, but taking 3% of the capital and income is theft.

Fair comment, if you are going to panic then panic first as they say.

Ultimately I agree with the message, your retirement funding should be a balanced portfolio of assets which have increased over a lengthy period.

It is pretty irresponsible to tell someone who is 5 years away from retirement to sell everything and buy US biotech stocks. Same applies to longer term investors. The only thing that seems to have worked for a wide group of people is a well diversified portfolio.

Couple of comments:
1.) As you note GDP growth and JSE returns are not the same thing since the JSE does not represent all constituents of the ZA economy.
1.) Annual return is 11% for the 10 years shown for 10X investment. The World Equity and US Equity ETF’s have given approximately 13% and 16% p/a over this period. If you had invested all your money in the US ETF the value would be 487 vs 306.
2.) Is South Africa in a structural decline with respect to equity returns? In the long run this is driven by earnings growth for equity holders – where will this come from? The equity holders are at the end of the queue and the stakeholders in South Africa eat more and more of the value created by the firm. It is no good hoping that a re-rating will be sufficient to drive equity returns.
3.) Probably the biggest issue – can you trust the regulatory framework around pensions and what will this look like in future?

Inflation compounds at 6% p/a in the graph showing the 10X returns. Does anyone actually believe that number? I suspect actual cost of living increases are quite a bit closer to the 11%.

Now that resonates with me… How much do you trust your government? Your illustrious ANC, and then try to imagine what this place looks like many decades down the line when we retire? You have to diversify geopolitical risk, globally diversified is NB…

I cant entrust the bulk of my retirement funds to a system controlled by the ANC, its asking for doom…

Pinch of salt though, I do use RA’s for some tax benefits, but its meaningless in the context of where the real money goes which is out of reach of ANC…

Can you say prescribed investments in SOE’s… Here buy some equity in our failing SOE’s…. Dont expect any returns though, its your duty as a citizen… Its about maintaining jobs brother…

@Lemon &yeboBRU. Agree. “..what will FUTURE regulatory framework be like for retirement funds?” “..with a certain % compulsory investments in SOE bonds” etc etc.

In my book it’s called “SA sovereignty risk”.

In SA we work for 45 years , pay tax and invest for retirement only to be taxed again on retirement funds, capital gains and huge indirect taxes to finance totally inefficient Government operations such as SAA and Escom. A great place to retire ?

It would be a great gesture of stewardship if Mr Nathan can shed some light on the truly disappointing performance of the 10X range of funds. This disappointing performance is after fees and costs and something has gone wrong in the management of these funds – where disclosure and transparency is underwhelming.

What management of the fund, it’s index funds? (rolls eyes)

My work 10x fund did better than my AG and Coro RAs.

Please read this article, dtgaed 1 year ago when Naspers were on fire:

“Low costs alone are not a sufficient reason to invest in an investment fund.

The fact is that there are investment funds out there that have proven their long-term returns are above average and consistent. And, they can outperform low-cost, passively managed funds by a wide margin.”

MW, why did you delete my comment illustrating that truth behind low-cost RA’s? I suspect it is because 10X are paying you huge money for their ‘marketing message’ to appear as main headlines?
SHame on you?
My reference was public knowledge – all I will now do is place it on other web-sites and/or social media.
Your journalistic integrity is eroding fast!??

I think its great that Moneyweb also runs a comedy slot

Invest a portion in Crypto currency….

If you disagree, suggest you save this message somewhere and read it again in a few years from now.

90% of taxpayers did not vote for the ruling gov party… let it sink in and please, take as long as you need to grasp this…
the biggest export in SA is no longer gold, platinum or diamonds, but taxpayers and skilled workers. so who is your new customers? millennials
R 100.00 in your pocket this year will be worth R 94.00 next year.
$ 100.00 overseas will be worth $ 99.00 in cash next year.
this rand-weakening, high-inflation, high interest rates are BIG BUSINESS for 10x and the likes, they thrive on it, no wonder they say invest with us. you need to beat inflation before you’re even getting a return on investment. this is not rocket science.
And yes, mr 10x, it is the gov’s fault, guptas and poor economic growth. Why would you invest in something that know will lose in the end? the 90% failure rate is because people don’t have money to invest, they just surviving one month to the next.
i’ve been contributing towards a retirement annuity for the last 20 years and its only worth one month’s salary in today’s terms. patiently waiting for the compound to kick in, but then also the premium increases with 10% per year (more than inflation?). wow, rocket science right there.

As they say, follow the money. Mr Nathan is probably worried about people moving their investments overseas, reducing his income.

10x’s radio ads are awful condescending nonsense.

Having a EU/US providing [ lending ] again a zero percent, for banks, and 5 for the deplorably, S.A is a great place to be. The country is renowned to be on the side of investors. The only difficulty is timing it right, and reinvest. Resulting in new build shopping centers, factory’s, and toll roads. For locals, returns depend on factors like profit [ Steinhof ]. Boring stuff for their adviser. On a leash of, yes, first time right. Tourism have the potential to spoil the fun. Explaining the handling of it.

Steven states that 10X believes that fees should be kept to a maximum of 1%, yet their own fees are higher than this

Steven states that cost is important and that index tracking is the best investment strategy. Both assertions I agree with. However, I have called him out on several occasions without answer: “Why must I invest in 10X if they are not the cheapest index based RA around”. By his own advice, look elsewhere.

End of comments.





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