People throughout the world are generally not putting aside savings for their retirement. Over 60% of South Africans do not save for their future. It’s scary, but only 6% of South Africans are on track to be able to enjoy a comfortable life after work. This is not just a problem for this country.
Make this the year that you set yourself up for a secure financial future. We at Morebo would love to partner with you to put you on the right track. Let’s start by looking at just why this is so important:
What if… A Tale of Two Friends
Evinah and Sithembiso both matriculated in the same year. They followed a similar course of education and had careers after that. Both began jobs with comparable salaries. They even progressed in their fields almost simultaneously. They each received similar increases at about the same time as the other.
However, there was one major difference. When they were 60 years old, Evinah had saved over R2.7 million rand. Sithembiso had less than R950 000 saved.
This is a shocking difference of R1 767 439. How did this happen?
Was Evinah saving more per month than Sithembiso? No, they were both saving R500 per month.
Did Evinah find a better investment platform with a better interest rate? No, they both were saving at an annual interest rate of 10.75%.
So how did Evinah land up with so much more saved than Sithembiso?
The power of compound interest and time
There was really only one difference between the two friends in their strategies. Sithembiso started to save and invest when he was thirty. Evinah started when she was 20 years old.
It was only a difference of ten years, but it meant over R1.75 million difference at the end of their careers. This is how interest on investments work. You earn more because the interest you earn begins to earn interest as well. It is not as difficult to understand as some people think.
How does this work?
To explain this simply, we will use very simple figures. If someone invests only R1000 in January for one year at 10%, it will be worth R1100 a year later. If it is invested for two years, the second year it will be R1100 earning that 10% (not only 10% on the initial R1000). So the second year you won’t be earning R100 interest, but R110. Each year, the amount of money earning interest will be more, so you will be earning more money.
But the marvel of compound interest gets better:
Interest is worked out each month!
This means that it isn’t a simple matter of earning the 10% on the R1000 in a year. It does, in fact, grow each month that you have the money invested.
So if you invest R1000 for one year, and interest is 10% per annum, your investment already begins to grow in the first month that you deposit it. This is worked out by multiplying the base investment by the annual percentage and then dividing it by 12. You divide by 12 because that is the how many months are in a year.
It works like this. The rate, as we said, is worked out each month. So, if the rate is 10% for the year, you would earn R100 a year. That would work out to about R8,33 a month. So if you invest the R1000 at the beginning of January, you will be earning interest on R1008,33 in February. By the end of February your investment would have earned about R8,40 (rather than R8,33). So for March your investment is earning interest on R1016,73. This means in April your investment will be earning approximately R8,47.
Each month your investment grows and by the next January, instead of earning R100 on your investment, you will have earned about R105 in interest.
This doesn’t seem like a lot, but this is why Evinah will have over R1.75 million more than Sithembiso. The compounding of the earnings on a monthly basis means millions of rands over forty years. This is even when you don’t increase your monthly contribution amount each year.
This is why compound interest can be called the eighth wonder of the world. (Even if it wasn’t Einstein who called it that.)
If you have been investing
It is absolutely wonderful if you have been investing. This means you have shown wisdom and foresight that many people lack. It’s not just in our country that people are not planning or saving for their retirement. There is a trend throughout the USA, Europe and Australia to neglect this important part of life planning.
Keep investing. Keep saving. But sit with a professional to ensure that your strategy is still right for you. Life changes over time. Our needs and means are not the same today as they were five or even three years ago. In a year like the one we saw in 2020, needs can change even faster.
Investments should be monitored. You should be sitting with a professional every three to six months. This is to ensure that everything is on track. Markets are constantly in flux. Regular meetings ensure that your investment is performing as well as it can. As the market changes, adjusting your strategy takes advantage of the changes that will benefit you. And it assists you to avoid changes that could have a negative impact on your investments. If you haven’t had this meeting in the last six months, contact us.
We will join you for the journey. We will stay the course with you, if that is best for you. Or we will help to refine your investment strategy. Whatever your needs, we will be there for you.
If you have not begun to invest
As we have seen, starting early is the best for anyone’s investment portfolio. If you have not been investing, now is the time to start.
While you cannot reclaim time lost, do not lose anymore time. We will strategize with you to ensure the best outcome you could have. Whenever anyone starts investing, today is better than tomorrow.
Let us help you to achieve the financial goals you know you need. We will even assist in identifying goals and needs that might have been overlooked until now. And then we will plan to meet those goals.
Beginning something good should never be delayed. We should never put off improving ourselves or managing our finances wisely. But New Years does present an excellent opportunity to evaluate ourselves. Use the impetus that January often signals to start a wise investment strategy.
Morebo is there to help!
Morebo’s goal is to see you financially secure. We want to assist you in attaining your goals. We also want to ensure that nothing has been left to chance or overlooked. We can assist you in finding the best products for your needs. We can help to make sure that you are following the right strategy for what you want to achieve.
Be in touch with us today. We want to make sure you are on track to attain the outcome that you desire. Tomorrow’s long-term financial security starts now.
Disclaimer: All figures have been used for illustrative and explanatory purposes only. No guarantee on interest rates is offered and earnings will vary depending on a number of factors. Morebo consultants will be happy to discuss the factors and their possible impact with all of our clients. Terms and conditions apply.