Why sooner is better in ‘worrisome’ South Africa

 ·2 Jul 2023

Putting off saving in favour of spending either increases the amount that you will have to save to make up the losses – or pushes out the date at which you will reach your goal, says Shaun Duddy, senior manager in the product development team at Allan Gray.

Duddy added that one should not try and time the market.

“It is true that you receive better value for money if you invest after the market has fallen rather than at its peak. However, this does not mean that you should put off saving if you are unsure what the market is going to do next.”

In all but the most extreme situations, the cost of putting off saving exceeds the benefit of starting at the bottom, he said.

“This is because even money that has decreased in value is a better contribution to a long-term objective than money that has been spent on short-term gratification.”

The graph below from Allan Gray shows that if investments are returning 9% per year and you need to meet a 10-year objective, delaying saving for just 18 months will increase the amount you need to save per month by more than 25%.

The red line on the graph illustrates that when your timeframe is five years, an 18-month delay results in more than a 50% increase in the amount required per month of saving, said Duddy.

Experts argue that savings rates in South Africa are worrisome, even as an emerging market.

Recent data from accounting firm Deloitte’s South African Investment Management Outlook for 2023 showed that it currently sits at 0.5%.

The savings rate is obtained by subtracting a country’s consumption from its income and dividing the result by income – serving as a gauge of a nation’s well-being, reflecting patterns in savings that ultimately drive investments.

According to Deloitte, the rate is the GDP that is saved rather than spent in an economy.

As a result of dimmed savings, consumers are unable to tap into emergency funding when there is severe inflation or rising interest rates – which is the case, currently.

A recent survey from FNB Retirement Insights that questioned roughly 1,000 consumers at the start of this year found that the majority of South Africans will have to work past retirement age due to a lack of adequate savings.

Bheki Mkhize, the CEO of FNB Wealth and Investments, found that South Africans were starting to save for retirement much later, with those aged between 18 and 25 believe that they would start to save for retirement at 36.

To improve savings, Duddy advised that it is best to adopt a long-term approach savings or investment approach, sticking with a handful of promising opportunities and not switching when times get tough or other opportunities that look promising in the short term.

Read: South Africa edging closer to recession

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