MONEY CLINIC | I have R70k in retirement savings. How can I diversify my investments?

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A young Fin24 reader looks to an expert in order to beef up his investments, in the hopes of one day retiring comfortably. 

He writes:

I am currently 24 years old and earn a salary of R20 000 after deductions. I am putting away R2 000 a month into a Retirement Annuity and I currently have R70 000 in that annuity.

I am not satisfied with the current growth of the annuity and looking at ways to diversify my investments to ensure I get the maximum benefit at the time of retirement. I am considering maybe purchasing a small property in order to be able to rent it out in future and have it as an asset.

I am a little uncertain of avenues I can take to save up money for my retirement.

Asavela Gwele, Client Relationship Associate at 10X Investments, responds: 

You are setting yourself up for success by saving diligently from a relatively young age, and asking questions, such: As am I saving enough? And are my savings working hard enough?

Since you did not disclose your gross salary, I have done some calculations using R20 000, but bear in mind that your numbers will be somewhat higher.

By putting R2 000 a month in a retirement annuity, i.e. 10% of your take-home pay, you are taking advantage of less than half the tax relief available to you. Up to 27.5% of your salary is tax deductible, i.e. on a salary of R20 000 you pay no tax on up to R5 500 saved into a retirement savings vehicle every month.

It is advisable to take advantage of tax relief, which is much like a gift from the taxman to reward retirement saving, before looking into other ways of investing.

Diversification is important, which is why your retirement savings should be held in a well-diversified portfolio of shares, property, bonds, and cash in South Africa and internationally.

If you are not happy with the performance of your fund you should educate yourself and shop around. It is your money, after all. Performance information should be easy to find, but bear in mind this is a marathon, not a sprint, you really should be looking at performance over at least 10 years.

While you are at it, you should find out how much you are paying in fees. High fees might be one of the reasons your investment is performing poorly.

South African retirement savers pay an average of 3% of the total value of their savings pot every year. There are low fee options, such as 10X Investments, which charges less than 1% plus VAT. That difference compounded over many decades will grow to be a very large sum of money.

Based on your R2 000 monthly contribution, increasing annually at 5%, your investment could be expected to grow to R5.4 million with 10X by the time you reached age 65. Paying the industry average fee you would probably come out with R2.8 million at 65.

Questions may be edited for brevity and clarity.

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