Cape Town - Regardless of who you invest with or what policy you have, chances are you’re unable to make sense of each and every line item on your investment statement.
This is not necessarily a failing on your behalf, as investment statements are notoriously tricky to understand - there’s no standard format, and what you can expect to see can differ across providers and policies.
According to Emma Heap, managing director of Retail at 10X Investments, it is essential that consumers learn the ins and outs of their financial statements to avoid having to rely on someone else to monitor their money.
“Consumers should be able to understand what is happening with their finances from month to month so that they don’t have to rely too heavily on their providers when it comes to making important financial decisions.”
The categories you can expect to find in your financial statement:
Generally, an investment statement will contain basics like your name, policy numbers, a summary of investments and policies, and the details of your financial advisor.
All transactions that have taken place since your last statement will usually be listed. Your statement will reflect the gains and losses you have made, along with any contributions and withdrawals, and this amount will be shown as a percentage or in a rand amount.
The retirement income you draw from your living annuity or life annuity is reflected on your statement as monthly income or draw-down.
Some providers will give you a breakdown of the portfolios you are invested in, and their allocations.
Examples of some terminology you can expect to see in this category include the following:
- Asset class: The types of assets you’re invested in, such as equities (or stocks); bonds; property; and cash;
- Asset mix/allocation: This will show you what percentage of your money is invested in which asset classes.
This section details how your money has grown over the duration of the time stated on the statement. Depending on your recent transactions and your return, the beginning and ending balances are usually different.
For many investors, this is seen as the most important statement category as it shows the amount by which investments have increased or decreased in value. However, as we explain in the Fees section below, your returns are actually only half the picture.
Your returns are what providers, brokers, and advisors usually highlight as the most important part of the statement. While returns do matter, they alone do not determine how much money ends up in your pocket. If you are interested in how much money you are really making, you need to look at your net return.
The question is, what is a net return and how do you find it? The bad news is that you can't find it on your investment statement.
The good news is that you can calculate it yourself, with the following simple formula:
Net Return = Return – (Total Fees + Costs).
Most statements unfortunately only display one or two fees, while many omit fees entirely, saying that the information is available on request. And those that do show fees often obscure their impact by showing them as a rand amount, as opposed to a percentage, which can disguise the fees’ impact as they compound over time.
Investors can learn what the costs and fees are by knowing the types of fees they can expect to see, including administration fees, performance fees, platform fees, fund manager fees, financial advisor fees, penalty fees, marketing fees, and transaction fees.
Heap concludes that while a service provider is responsible for providing statements, it is up to the consumer to educate themselves on what these statements are showing.
“This will make it easier to know what is happening and allow you to ask the right questions, should you see any concern areas on a statement. While you may pay for guidance from a financial advisor, in order to make the most of this guidance, it is always in your best interest to educate yourself on what is being said.”
SUBSCRIBE FOR FREE UPDATE: Get Fin24's top morning business news and opinions in your inbox.